Active Stocks
Fri May 24 2024 15:59:27
  1. Tata Steel share price
  2. 174.80 -0.37%
  1. NTPC share price
  2. 374.85 0.68%
  1. State Bank Of India share price
  2. 828.60 -0.45%
  1. ITC share price
  2. 436.10 -1.16%
  1. Power Grid Corporation Of India share price
  2. 318.50 -0.39%
Business News/ Politics / Policy/  Widening fiscal deficit piles up pressure on govt to cut spending
BackBack

Widening fiscal deficit piles up pressure on govt to cut spending

India's fiscal deficit in the first half of the fiscal widens to 76% of the budgeted target, up from 65.6% a year ago

Data released by the Controller General of Accounts on Thursday showed that while expenditure was at 48.6% of the planned estimate as against 46.5% last year, revenue collections were only 36.9% of the budgeted number, down from 37.5% last year. Photo: MintPremium
Data released by the Controller General of Accounts on Thursday showed that while expenditure was at 48.6% of the planned estimate as against 46.5% last year, revenue collections were only 36.9% of the budgeted number, down from 37.5% last year. Photo: Mint

New Delhi: India’s fiscal deficit in the first half of this financial year widened to 76% of the budgeted full-year target, up from 65.6% in the year-ago period, as expenditure outpaced revenue collections in the face of an economic downturn, exerting pressure on the government to reduce spending.

Data released by the controller general of accounts (CGA) on Thursday showed the fiscal deficit, or the government’s gross borrowings, in the April-September period was 4.12 trillion, against the target of 5.42 trillion set for the year ending next 31 March.

Expenditure was 48.6% of the estimate, compared with 46.5% in the year-ago period, and revenue collections (both tax and non-tax) were only 36.9% of the budgeted number, down from 37.5%.

In actual numbers, while expenditure in the first six months of the current fiscal was 8.09 trillion, against a full-year target of 16.65 trillion, revenue receipts were 3.89 trillion, compared with a target of 10.56 trillion for the full fiscal.

The numbers exert pressure on the government to further reduce expenditure, especially non-Plan spending that includes interest payments, subsidies, wage and salary payments, to meet the fiscal deficit target.

The government hopes to contain the fiscal deficit at 4.8% of gross domestic product (GDP) in the current fiscal. In 2012-13, it managed to keep the deficit at 4.9% of GDP, largely by controlling Plan expenditure.

This year, the government has announced steps to curtail non-Plan expenditure through austerity measures. Every department has been asked to cut non-Plan expenditure, including the subsidy payout, by 10% through which the government hopes to save as much as 20,000 crore.

But the rising subsidy bill, courtesy food and oil subsidies, may make it difficult for the government to achieve a major reduction in non-Plan expenditure.

The numbers are a “wake-up call" for the government, said Rajesh Chakrabarti, executive director at Bharti Institute of Public Policy, and a member of the faculty at the Mohali campus of the Indian School of Business.

“Going by the current numbers, it does look like the government will overshoot its fiscal deficit target. If the government wants to curtail the deficit, it may have to look at more ways of reducing expenditure, both Plan and non-Plan," he said.

“However, it may not be easy for the government to reduce Plan expenditure, given that the general election is due next year," he added. “The government cannot do much on the revenue side as a slowing economy may not aid in boosting tax collections."

CGA data show that the pace of tax collections continued to be sluggish with tax revenue reaching only 34.8% of the budget targets in the first half this fiscal, against 38.1% in the year-ago period, mainly on account of muted growth in corporate tax and customs duty collections and a contraction in excise duty collections.

Corporate tax collections grew 7.5% to 1.54 trillion and revenue from customs duty was up 5.7% at 83,027 crore; excise duty collections declined 8.2% to 61,928 crore.

The government is hoping that tax collections will pick up in the second half, both on the direct and the indirect tax front.

On the expenditure front, while non-Plan expenditure was at 51.6% of the budget estimate (50.7% last year), Plan expenditure was at 42.5% (38.9% last year).

The revenue deficit was 84.8% of the target, against 75.1% last year.

“Tax revenue slippage looks inevitable, given the weak economy and the tax collections till now. The government will have to undertake more spending cuts than what they have announced so far," said Anubhuti Sahay, senior economist at Standard Chartered Bank. “The government may have to work harder to meet the disinvestment target to improve the revenue situation."

The government had set itself the target of raising 40,000 crore by selling stakes in state-owned companies this year, of which it has so far raised only 1,325.27 crore.

You are on Mint! India's #1 news destination (Source: Press Gazette). To learn more about our business coverage and market insights Click Here!

Catch all the Politics News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 31 Oct 2013, 04:31 PM IST
Next Story footLogo
Recommended For You