Public spending, salaries drive H1 fiscal deficit to 84% of Budget estimate

The Centre’s fiscal deficit ballooned in the first half of the fiscal year 2016-17 on account of elevated public spending and higher salaries outgo. However, revenue from divestment and other quarters including spectrum sale and black money scheme over the next few months will facilitate achievement of fiscal deficit target.

The gap between Centre’s expenditure and revenue touched 83.9% of the budget target for the year, significantly higher than 68.1% in the corresponding period of the previous fiscal. In absolute terms, the fiscal deficit was at Rs 4.47 crore in the first half of 2016-17 against Rs 5.34 lakh crore budgeted for the fiscal, according to Controller General of Accounts data released on Monday. The deficit for the full year has been pegged at 3.5 per cent of gross domestic product (GDP).

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A steep rise in capital expenditure in September was encouraging, considering that private investment remains muted. Capital spending grew by 20% on a year-on-year basis in September to Rs 43593 crore. In the first half of the fiscal, capital expenditure has seen a 4.6% growth to Rs 1.34 lakh crore as against Rs 1.28 lakh crore in the corresponding period of the previous year.

Capital expenditure denotes money incurred on asset generating projects, while revenue expenditure is on immediate needs such as salaries and pensions. The September figures were positive as government started paying higher salaries and pensions from August due to the implementation of the Seventh Pay Commission recommendations. The government exchequer would see a hit of ~84,000 crore this financial year.

Economic growth is hinging on government spending in key sectors including infrastructure as private sector remains wary due to high interest rates. However, newly formed monetary policy committee headed by RBI governor Urjit Patel cut repo rate by 25 basis points earlier this month to 6.25%, which is expected to be transmitted to the end users with a lag. .

The pace of rise in the fiscal deficit saw a sharp increase from 76 per cent in the first five months and 71% in the first four months.

Expenditure is traditionally front-loaded. Besides, government is expecting  revenue inflow from disinvestment, black money scheme and spectrum sale.

Total expenditure stood at Rs 10.2 lakh crore which was 52 per cent of BE, higher than 51.2% in the previous fiscal’s first half. Total receipts were just 40.1% of what is budgeted for the entire fiscal, as against  43% achieved during the same period last year.

Tax receipts during April-August of 2016-17 stood at Rs 4.48 lakh crore, representing 42.5 per cent of the Budget estimates. The proportion was higher than 40.2% in the corresponding period of the previous financial year. It is expected to get a leg up[ over the next few months with about Rs 15000 crore expected in the current year from the Black Money Scheme that ended onSeptember 30. The government saw decelarations worth Rs 65000 crore, which translates to Rs 30000 crore in revenue on account of 45% tax. Half of that will come to the government by March.

Mop-up from non-tax revenue, at Rs 1.18 lakh crore  in the first half was 36.8 per cent of BE. The proportion was almost half of 64.8 per cent in the corresponding period of the previous year.

Non-debt capital receipts were at Rs 12815 crore, accounting for 19.1 per cent of BE, much less than 23 per cent a year ago. However, disinvestment proceeds, which is part of non-debt capital receipts, were Rs 21,000 crore till September.

Last week, Cabinet, led by Prime Minister Narendra Modi gave an ‘in-principle’ approval to strategic sales and disinvestment in a number of state-owned companies, kick-starting the process of valuing these entities and finding interested buyers.

The public sector undertakings (PSUs) include loss-making and profit-making entities as well as assets such as factories and plants. ome possible names of entities for which approvals could have been sought include Pawan Hans, Bridge and Roof Co, BEML, Scooters India, Hindustan Prefab and Central Electronics. Approvals may also have been sought for selling some units of Steel Authority of India and NMDC.

The government's disinvestment target for the current financial year is Rs 56,500 crore. Of this, Rs 36,000 crore is expected from minority stake sales and buybacks. The rest is expected from strategic sales in loss-making or profit-making PSUs or their assets (factories, warehouses, and office buildings). The government has managed Rs 21,000 crore through stake sales and buybacks in the first six months, the highest-ever first half divestment revenue for any year by a good margin, raising expectations for the rest of FY17. Of this, Rs 16,500 crore is from buybacks initiated by five PSUs. The rest is from five stake sales through the offer-for-sale route.