Primary deficit in Q1 over ten times of Budget target at Rs 3 lakh cr

Widening of the deficit caused by front-loading of expenditure

The Centre's financial position would have looked too shaky in the first quarter of the current financial year had the government accepted Chief Economic Adviser Arvind Subramanian's recommendation of focusing on the primary deficit for fiscal consolidation.  

Primary deficit simply tells how the government is borrowing to meet its current expenditure. In technical terms, it is the fiscal deficit sans interest payments.  

During April-June, the primary deficit stood at 1,314 per cent of the Budget target for the entire financial year 2018 (FY'18), according to the data given by the Controller General of Accounts. 

The primary deficit was pegged at Rs 23,454 crore for the entire year but it crossed Rs 3 lakh crore in the first quarter. 

In the corresponding period of 2016-17 as well, the figures were astonishing but not as much as this time. The deficit under review was 527 per cent of the target. 

The deficit was wider this year due to front-loading of expenditure; the Budget was advanced to February 1 so that the states and departments can start spending from the beginning of the financial year. Earlier, the Budget was held at the end of February. This led to late allocation and spending on schemes. 

"It is not a worrisome situation, it is due to front-loading of expenditures," Madan Sabnanvis, chief economist at Care Ratings, told Business Standard. 

Sabnavis explained that interest payments stood at just Rs 1.33 lakh crore in the April-June quarter, constituting just 25.5 per cent of the Rs 5.23 lakh crore figure pegged for the whole year. 

As such, while interest payments have been evenly distributed in the year, the expenditure has been advanced. This has caused the widening of the primary deficit. 

Also, the primary deficit to gross domestic product (GDP) ratio was not pegged at high levels. It was targeted to come down to 0.1 per cent of GDP in FY'18 against 0.3 per cent in FY'17. 

In FY'17, the primary deficit overshot the target by 6.5 per cent. 

In a dissent note to the recommendations by the Fiscal Responsibility and Budget Management (FRBM) panel, Subramanian had said that there should be one target — a steady glide path that eliminates the general government primary deficit within five years.

"This would ensure a declining debt trajectory, which would reassure investors and ensure that India’s debt remains sustainable even when India’s debt dynamics turn less favourable in the medium term," he had said.

The panel, headed by former bureaucrat N K Singh, had suggested that fiscal deficit should be brought down to 2.5 per cent of the GDP by FY'23 in a phased manner. It has also suggested targets for revenue deficit and the debt to GDP ratio.

The government is yet to accept the recommendations of the FRBM panel.