New Delhi: Finance
Minister P. Chidambaram proposes to contain the fiscal deficit at
4.8 percent of the Gross Domestic Product (GDP) during 2013-14
despite an aggressive 30 percent surge in plan expenditure and
nearly 12 percent increase in overall spending. Experts, however,
The sharp increase in spending, especially on welfare measures, in
view of next year's general election, casts doubts on the
reliability of Chidambaram's budgetary proposals on fiscal
consolidation, the experts say.
"The improvement in the current fiscal year's deficit outcome has
been achieved mainly through reducing expenditure. At the same
time, there is little progress in structural reforms to reduce the
vulnerability of the government's fiscal position," global ratings
agency Standard & Poor's said.
Another ratings agency, Fitch, that last year threatened to
downgrade India's ratings to junk status said "delivery of subsidy
reforms, GDP growth and uncertain proceeds from the privatisation
process are the key risks" for Indian economic policy makers.
In the 2012-13 fiscal that ends March 31, the government has
failed miserably to achieve the budgetary numbers. On most of the
macro-economic indicators, the performance so far has been far
below the estimates.
The budgetary target of economic growth for the current fiscal was
7.6 percent, while the actual growth, according to the Central
Statistics Office (CSO), is estimated to be around five percent.
Inflation was targeted to be around 6.5 percent, but it remained
above seven percent for the most part of the year. In fact, food
inflation remained much above the target. It was recorded at 10.79
percent in January and has remained above 10 percent since the
beginning of the financial year.
Chidambaram's predecessor Pranab Mukherjee, who is now India's
president, in the budget for 2012-13, had targeted a shortfall of
5.1 percent of GDP. Now the budget estimates it to be slightly
higher at 5.2 percent.
Chidambaram is able to achieve the 5.2 percent fiscal deficit
number largely because of the massive cut on spending and
deferment of payments on fertiliser and other subsidies. Total
expenditure of the government has been reduced by Rs.60,100 crore
to Rs.14.30 lakh crore from the budgetary estimate of Rs.14.90
The 4.8 percent fiscal deficit target for the financial year
beginning April 1 looks a bit challenging. According to the budget
documents, the 0.4 percentage point reduction in the fiscal
deficit in 2013-14 year-on-year will be largely revenue-driven.
While expenditure is retained at the same level of 14.6 percent of
the GDP, tax revenue is estimated to go up by 0.4 percent and
non-tax revenue by 0.2 percent as a proportion of GDP.
The gross tax revenue is estimated to increase from 10.4 percent
of the GDP in the current fiscal to 10.9 percent of the GDP next
year. To achieve this, tax revenue needs to increase by 19.1
percent year-on-year. The total mop-up target from tax revenue for
the next fiscal is pegged at Rs.8.84 lakh crore.
The 19 percent increase in tax revenue seems ambitious given the
state of the economy. Chidambaram proposes to mobilise additional
revenue of Rs.18,000 crore from adjustments in tax rates and
surcharges. This should give some breather.
Revenue from taxes is closely linked to economic growth. The
government hopes that the macro-economic outlook will be better
and the GDP will expand in the range of 6.1 to 6.7 percent in
2013-14 and it should go above seven percent in following year.
The rosy growth outlook is based on the assumptions of a normal
monsoon and better global economic scenario, especially in the US
and Europe. It is too early to say how the monsoon will behave.
Although there is some positive news from the US, European
economies remain in trouble.
The finance minister has under-provided for subsidies, especially
on oil. In the current financial year, the total subsidy is
expected to rise to Rs.2.47 lakh crore against the budgetary
target of Rs.1.79 lakh crore. Subsidies on petroleum products is
expected to be more than double at Rs.96,880 crore against the
budgetary target of Rs.43,580 crore.
Mukherjee had targeted to keep the subsidy bill below two percent
of the GDP. But the actual number is expected to be 2.6 percent.
For the next financial year, Chidambaram has pegged the subsidy
bill at Rs.2.21 lakh crore or two percent of the GDP. This
assumption is based on a gradual increase and ultimate de-control
of diesel price and reasonable price of crude oil in the
However, with the elections round the corner, it will be difficult
for the government to go for any steep rise in diesel prices.
Also, crude oil is a volatile commodity in the global markets. So,
it is difficult to predict what way it will move.
(Gyanendra Kumar Keshri can be contacted at firstname.lastname@example.org)