Government's fiscal deficit math faces questions

The government’s decision to borrow Rs 53,000 crore above the budget target from the market during the current financial year has raised questions on its fiscal deficit target of 4.6 per cent of the GDP.

The doubts get further strengthened as, till August, the Centre’s fiscal deficit has already touched  66.3 per cent of the budget estimates of the entire fiscal, despite control over plan expenditure .

However, last year, the deficit was just 39.7 per cent of the estimated gap between expenditure and revenue for 2010-11, aided by robust proceeds from the spectrum sale for 3G services and wireless broadband access.

Finance Minster Pranab Mukherjee, however, maintains that the Rs 5,3000-crore extra borrowings will have no bearing on the fiscal deficit target of 4.6 per cent of GDP for the current fiscal. “It is too pre-mature to say that it will adversely impact the fiscal deficit....We have to borrow Rs 53,000 crore to ensure that there is an un-interrupted cash flow,” he says.

“As far as the fiscal deficit is concerned, we shall have to consider various other factors.” The fiscal deficit till this August stood at Rs 2.73 lakh crore. That is nearly 80 per cent more than that in the first five months of last fiscal.

The non-tax revenue is less than half of what was received till last year August. This could be credited to the 3G spectrum auctions that helped the government earn a revenue of a whopping. Non-tax revenue till August is just Rs 43,000 crore, compared to Rs 1.52 lakh crore last year.

Tax revenue was marginally higher at Rs 1.44 lakh crore till this August vis-a-vis Rs 1.38 lakh crore last year. The total receipts stood at Rs 1.98 crore till August, compared to Rs 2.96 crore last year.

The non-plan expenditure incurred till August is higher than 2010-11, while it is exactly an opposite trend with regard to plan expenditure.

The non-plan expenditure in the first five months stood at Rs 3.40 lakh-crore, compared to Rs 3.11 lakh-crore in the corresponding period of last fiscal. Plan expenditure stood at Rs 1.32 lakh-crore against Rs 1.36 lakh-crore.

The centre’s revenue deficit touched Rs 2.30 lakh crore till August, constituting nearly 75 per cent of the budget target this year. And the primary deficit, which is government’s total expenditure, exceeds its total revenue, excluding interest payments on its debt, stood at Rs 1.73 lakh crore — more than the budget estimates for the entire fiscal.

“Looking at the economic scenario, the possibility of disinvestment is low,” says Siddharth Shankar, Director, financial services firm KASSA India. 

“So is the possibility of very high tax receipts. I have my doubts if the government can come anywhere close to the fiscal deficit target of 4.6 per cent of the GDP. To my mind, it would land up much higher than 5.1 per cent of GDP achieved in 2010-11.”