April-May fiscal deficit exceeds 45% of FY15 estimate

Experts said the difference could be attributed to higher payments towards the rollover of subsidies from the previous financial year

The Centre’s fiscal deficit for the first two months of this financial year has already touched about half the amount estimated for all of 2014-15 in the interim Budget. In the run-up to the Union Budget, expected to be presented on July 10, this paints a grim picture for Finance Minister Arun Jaitley.

In April and May, the fiscal deficit, or the government’s expenditure in excess of its receipts, accounted for 45.6 per cent of the interim Budget estimate for the full year. By comparison, the two months had accounted for 33.3 per cent in 2013-14, official data showed.

Experts said the difference could be attributed to higher payments towards rollover of subsidies from the previous financial year. This could be assessed from the fact that non-Plan expenditure for April and May this year accounted for 18.3 per cent of the interim Budget estimate for 2014-15; in the corresponding months last year, the figure had stood at 13.4 per cent. The revenue part of non-Plan expenditure, comprising interest payments on past debt, subsidies, salaries, etc, stood at Rs 1.98 lakh crore, or 17.9 per cent of the estimated Rs 11.08 lakh crore for the entire financial year. In the year-ago period, the revenue part of non-Plan expenditure had accounted for 12.8 per cent of the 2013-14 estimate.

That higher payments were made for past subsidies could also be gauged from the fact that in April and May Rs 24,775 crore of non-Plan expenditure was accounted for by the petroleum ministry. In the year-ago period, it was only Rs 4.35 crore. Towards food, Rs 37,459 crore of non-Plan expenditure was incurred (Rs 24,555 crore in the year-ago period), while it was Rs 19,711 crore towards fertilisers (Rs 13,158 crore in the year-ago period).

“It seems a much higher amount has been spent on payment of rolled-over subsidies. This will give the finance minister less elbow room to spur economic growth and manage the fiscal deficit, as this payment has already been made,” said CARE Ratings Chief Economist Madan Sabnavis.

The government, though, managed its Plan expenditure much better. For April and May, this stood at Rs 59,609 crore, or 10.7 per cent of the estimate of Rs 5.55 lakh crore for 2014-15, against 12.3 per cent in the year-ago period.

This could also, however, be a concern for the finance minister, as this expenditure has to be higher for a recovery in economic growth.

During April and May, tax collections stood at Rs 28,651 crore, 2.9 per cent of the projection for 2014-15, owing to higher refunds. In the year-ago period, the figure had stood at 3.1 per cent.

Overall, receipts stood at Rs 39,502 crore, 3.2 per cent of the Rs 12.34 lakh crore estimated for 2014-15, against 3.3 per cent in the same period last year.

The interim Budget, presented by Jaitley’s predecessor P Chidambaram in February, had pegged fiscal deficit for 2014-15 at 4.1 per cent of gross domestic product, compared with 4.5 per cent the previous year. However, the deficit estimates doe the current financial year was an improvement over Chidambaram’s own road map, which had pegged 4.2 per cent. At a time the country’s economic activity seems to refuse to look up, Jaitley might face in the Budget the dilemma of whether to bolster growth or rein in fiscal deficit.