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The Centre's revenue deficit - the excess of non-capital expenditure over non-capital revenues - constituted about 54 per cent of the interim Budget target for FY15 in just two months of the financial year, presenting a reality check for Finance Minister Arun Jaitley ahead of the Budget. As a percentage of Budget estimate (BE), the revenue deficit stood at a six-year high in the first two months of the current financial year.
The broader number - fiscal deficit - in April-May 2014-15 accounted for 46 per cent of the entire year's projections made in the Budget presented by then Finance Minister P Chidambaram. This basically shows that the larger part of the Centre's fiscal deficit is contributed by an excess of expenditure, which does not generate capital, necessitating the need to divert resources from wasteful expenditure to capital outlays, to revive the economy.
The revenue deficit stood at Rs 2.05 lakh crore in April-May against Rs 3.82 lakh crore projected for the entire financial year. It constituted 85 per cent of the fiscal deficit in the first two months. For the entire financial year, the revenue deficit was projected to account for 72 per cent of the fiscal deficit.
It happens because higher amount of payments for subsidies seem to have been made in the first two months. This could be gauged from the fact that the revenue part of non-Plan expenditure - which includes subsidies, interest payments on past debts, salaries, etc - stood at Rs 1.98 lakh crore, constituting 17.9 per cent of the estimated Rs 11.08 lakh crore for the entire financial year. For the corresponding period last year, the revenue part of non-Plan expenditure had constituted 12.8 per cent of BE for 2013-14.
Total revenue expenditure at Rs 2.43 lakh crore constituted 15.71 per cent of Rs 15.50 lakh crore pegged for the entire 2014-15. For the corresponding period last year, it had accounted for 12.59 per cent.
If one gauges capital expenditure, it stood at Rs 36,764 crore in the first two month, accounting for 17.24 per cent of the Budget estimates for the entire year, at Rs 2.13 lakh crore. For the corresponding period last year, capital expenditure accounted for 15.91 per cent of what was estimated for the entire 2013-14 in the Budget.
As such, there is only a slight improvement in capex as well. However, it is not as high as on the revenue side.
Capital expenditure is pegged at Rs 2.13 lakh crore for 2014-15 in the interim Budget, lower than Rs 2.29 lakh crore in the BE for 2013-14. However, experts said the correct way of comparison would be between BE of this year with RE of 2013-14, since the entire amount of BE is seldom met, as departments have to show authorisation slips before further funds are disbursed. In that respect, capital expenditure would constitute about 13 per cent growth over revised estimate of Rs 1.87 lakh crore.
Even as higher allocation is made in the BE of the current financial year compared to the revised estimates of the previous year, economists do not think it is sufficient for accelerating economic growth.
Economist Arvind Panagariya wanted the government to raise capex from 1.76 per cent of GDP to two per cent, which would require an additional allocation of Rs 30,000 crore. This is particularly required to boost infrastructure spending to spur growth. "In light of the limited fiscal space, shifting resources to infrastructure funding from subsidies is vital to ease supply side constraints, improve the quality of expenditure and bring the revenue deficit under check," said Aditi Nayar, senior economist with ICRA.
She added that to free up resources to boost productive spending, trimming of unproductive schemes, cutting leakages and paring of subsidy expenditure is crucial.
"Committing to a cap on subsidies as a percentage of GDP would provide a foundation for enhancing fiscal discipline. Adhering to such a cap would in turn aid in improving the quality of government expenditure to encourage investment led growth,\" said Nayar.
