Fiscal deficit in Apr-Sep period balloons to 20-year high

If receipts from disinvestment, tax buoyancy and black money scheme offset shortfall in spectrum sale, higher expenditure due to pay commission's recommendations and capital expenditure, then the government would be able to meet the target of controlling fiscal deficit at 3.5 per cent of GDP this financial year.

The Centre’s fiscal deficit ballooned to 83.9 per cent of the Budget Estimates in the first half of 2016-17, the highest in the first six months of a financial year since 1998-99, on account of elevated capital spending and higher salaries outgo. On revenue side, lower realisations from disinvestment and other streams hurt the exchequer.

However, revenues from divestment, black money scheme and tax buoyancy due to enhanced economic activities on rural demand in the second half may help the government in reining the fiscal deficit at the targeted level of 3.5 per cent of the gross domestic product. Otherwise, the government will have to squeeze expenditure, experts warned.

The gap between the Centre’s expenditure and revenue was significantly higher than 68.1 per cent in the corresponding period of the previous financial year. In fact, it was the highest for April-September period since 1998-99, the oldest year for which the data is available on the Controller General of Accounts website. The closest it came to was in 2014-15 when the deficit was 82.6 per cent of BE in the first half. However, the deficit was controlled at targeted 4.1 per cent of GDP in 2014-15 by squeezing expenditure, particularly the planned one.

In absolute terms, the fiscal deficit was at Rs 4.48 lakh crore in the first half of 2016-17, against Rs 5.34 lakh crore budgeted for the entire financial year, according to data released by CGA on Monday.

A steep rise in capital expenditure in September was encouraging, considering that private investment remained muted.

Capital spending grew 20 per cent year-on-year in September to Rs 43,593 crore. In the first half of the financial year, capital expenditure has seen growth of 4.6 per cent to Rs 1.34 lakh crore, against Rs 1.28 lakh crore in the corresponding period last year. 

Capital expenditure denotes money incurred on asset-generating projects, while revenue expenditure refers to spending on immediate needs such as salaries and pensions. The government started paying higher salaries and pensions from August due to the implementation of the Seventh Pay Commission's recommendations. The exchequer would see a hit of Rs 84,000 crore this financial year because of higher pay and pensions.

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

Expenditure is traditionally front-loaded. Besides, the government is expecting revenue inflow from disinvestment and the black money scheme, but it will get half of the targeted money from spectrum auction.

Total expenditure stood at Rs 10.2 lakh crore, which was 52 per cent of BE, higher than 51.2 per cent in the previous financial year's first half. Total receipts were just 40.1 per cent of what was budgeted for the entire financial year, against 43 per cent in the year-ago period.

Tax receipts during April-August of 2016-17 stood at Rs 4.48 lakh crore, representing 42.5 per cent of BE. The proportion was higher than 40.2 per cent in the corresponding period of the previous financial year. However, direct tax collections were just 8.95 per cent as against the target of 14.1 per cent in BE. It is expected to get a leg up over the next few months with about Rs 15,000 crore expected in the current year from the black money scheme that ended on September 30.

The government saw declarations worth Rs 65,000 crore, which translates to Rs 30,000 crore in revenue on account of 45 per cent tax. Half of that will come to the government by March. The tax receipts may get a boost due to increase in economic activities, particularly pick up in rural demand, said Devendra Pant, chief economist with India Ratings.

The 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 year-ago period. 

Non-debt capital receipts were at Rs 12,815 crore, accounting for 19.1 per cent of BE, much less than 23 per cent a year ago. However, disinvestment proceeds, part of non-debt capital receipts, were just Rs 6,015 crore till September, against Rs 36,000 crore pegged in the Budget for the entire year. The strategic sales, targeted to yield Rs 20,500 crore in 2016-17, could not take off till September.

In the previous week, the Cabinet 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. Possible entities for which approvals could have been sought are 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.

If receipts from disinvestment, tax buoyancy and black money scheme offset shortfall in spectrum sale, higher expenditure due to pay commission's recommendations and capital expenditure, then the government would be able to meet the target of controlling fiscal deficit at 3.5 per cent of GDP this financial year, without compromising on expenditure. Only option left otherwise would be to cut expenditure to adhere to the fiscal deficit target, Pant said.

Image: Finance Minister Arun Jaitley.