August fiscal surplus may taper off from Oct, only to emerge towards FY16-end

Essentially, a fiscal surplus is when revenues outstrip expenditures for any given period

The data for central finances during April-August showed a pleasant surprising anomaly that the month showed a fiscal surplus of Rs 15,808 crore. It was the first time in eight years that there was a fiscal surplus for the month of August. However, this certainly looks difficult to sustain from October till at least January. This is so because the government has started raising excise duty on petrol from October last year and that base effect will come to an end from that month this year.

Essentially, fiscal surplus is when revenues outstrip expenditures for any given period. For any financial year, the central government frontloads its expenditures and garners in a bulk of its tax revenue in the October-March period.

In fact, March is when we see a fiscal surplus most years, when spending is curtailed and additional revenue is garnered to meet strict fiscal deficit targets. For example, the fiscal surplus for March 2015 was Rs 1 lakh crore, much required since by February, the fiscal deficit had overshot its budgeted target for the year. For March 2014, the surplus was Rs 91,150 crore.

The reason why August saw a kind of surplus not usually experienced at that stage of a fiscal year is because the tax and non-tax numbers were very encouraging. April-August net tax revenue were 23 per cent of the full fiscal year target, compared with 19 per cent for the same period last year. Non-tax revenue was 61 per cent of the full year target compared with 40 per cent for April-August last financial year.

Now bulk of the tax revenue came from indirect taxes, which surged 36.5 per cent year-over-year for April-August. But this surge was mostly due to additional revenue generating measures by the government, including cess and duties on petroleum products and increase in service tax.

Hence, in real terms, indirect tax increase isn't really as much as the numbers make them out to be. Just around 12 per cent in fact. This is compounded by the fact that total tax revenue projections for the year have been cut by Rs 50,000 crore by the centre. All of it, and more, may be because of direct tax collections.

While revenues rose by 1,47,022 crore (excluding market borrowings), expenditure increased Rs 1,31,214 crore, leaving a fiscal surplus of Rs 15,808 crore.

As such, fiscal surplus was reached without resorting to expenditure squeeze, thanks to softening position on subsidies due to low global crude and commodity prices.