Govt spending in FY17 likely to be revised down: Credit Suisse

The government has likely taken the move in order to meet its fiscal deficit target of 3.5%

Estimates of gross domestic product (GDP) released by the Central Statistics Office (CSO) showed government spending grew a staggering 39.1 per cent in the fourth quarter (Q4) of FY17. 

This estimate of spending (Centre and states) might not be based on full financial year data, say analysts at Credit Suisse in a new report. Rather, it is possibly based on data for only10 months.

The report estimates combined spending by Centre and states was actually lower by Rs 2.6 lakh crore or 1.7 per cent of GDP. Of this, roughly Rs 2.2 lakh crore was due to lower spending by states, with the balance being on account of the Centre. 

With non-tax revenue short of expectations, the government has likely pushed an estimated Rs 40,000 crore of spending to April 2017 to meet its fiscal deficit target of 3.5 per cent says the report. 

While the report suggests this shortfall has not yet been accounted for in the latest GDP estimates released by the CSO, others aren’t convinced about the impact on headline GDP growth.  “The bottom-up production-side estimates (namely agriculture, industry, services), aggregating to gross value added at basic prices, and then feeding into the headline GDP metric, tend to be relatively robust, albeit subject to some revisions as additional data become available,” said Aditi Nayar, principal economist at ICRA. “The headline GDP is disaggregated top-down into various expenditure components, for some of which quarterly data is not available in a timely manner.” 

Adding, “While paucity of data on central and state government expenditure for the entire quarter may have contributed to an overestimation of growth of government final consumption expenditure (GFCE) for Q4, in our view, availability of additional data could result in a lowering of GFCE growth, as well as an adjustment of the discrepancy figure. We do not anticipate that the lowering of GFCE growth would dampen the headline GDP expansion for Q4 to the same extent.” 

Discrepancies on the expenditure side of the data is a residual entry that remains after the CSO disaggregates the GDP from the production side into its expenditure components, such as private and government expenditure and investment.