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Rediff.com  » Business » Zooming fiscal deficit pours cold water on stimulus package

Zooming fiscal deficit pours cold water on stimulus package

October 01, 2017 09:12 IST

The deficit for the first five months of the year stood at 96 per cent of the full-year target of Rs 5.46 lakh crore despite a cut in capital expenditure in August.

In what could dash hopes of stimulus to propel the economy, the Centre’s fiscal deficit for April-August came in at Rs 5.25 lakh crore, the highest ever for this period compared to any previous year.

The deficit for the first five months of the year stood at 96 per cent of the full-year target of Rs 5.46 lakh crore despite a cut in capital expenditure in August.

The trend is contrary to the earlier pattern when expenditure was front-loaded, at least for capital outlays.

 

For the same period last year, the fiscal deficit stood at 76.4 per cent of the full-year target.

The data reflected goods and services tax (GST) collection in full scale for the first time.

Released by the Controller General of Accounts on Friday, the data came at a time when there have been discussions within the Narendra Modi government regarding a possible stimulus package through higher capital spending to boost manufacturing and infrastructure and to create jobs.

Any fiscal stimulus could lead to a higher-than-budgeted fiscal deficit for 2017-18.

The target for the year as percentage of gross domestic product is 3.2 per cent, already under stress because nominal GDP growth in 2017-18 might not be 11.4 per cent as assumed in the Budget. For the first quarter, nominal GDP grew only 9.3 per cent.

For April-August, tax revenue stood at Rs 3.41 lakh crore, about 28 per cent of the full-year Budget Estimates, compared with 26.6 per cent for the same period last year.

For the first time, the GST figures were taken fully into account. For August, Central GST contributed Rs 15,263 crore (Rs 152.63 billion) to the kitty.

“If the lack of clarity on the post-GST buoyancy of revenues after netting of refunds persists over the next two to three months, it may cloud the Budget planning process for FY19,” said Aditi Nayar of ICRA.

Non-tax revenue was Rs 69,256 crore, or 24 per cent of the full-year target, compared to 32.5 per cent for April-August last year.

“The sharp y-o-y decline in non-tax revenue receipts is likely to reflect the lower surplus being transferred by the RBI,” added Nayar.

Non-debt capital receipts were Rs 15,534 crore (Rs 155.34 billion), or 18.4 per cent of the full-year target, compared with 12.7 per cent last year.

The government put break on its  expenditure spree, with revenue expenditure rising just two per cent in August year-on-year.

Revenue expenditure for April-August came in at Rs 8.41 lakh crore, about 46 per cent of the full-year target, compared with 41 per cent for the first five months of 2016-17.

The biggest brunt of expenditure cut was borne by capex, which was down 26 per cent in August on a y-o-y basis.

This resulted in capital  expenditure to be only Rs 1.09 lakh crore, 35.5 per cent of the full-year estimates, down from 37 per cent for the same period last year.

Till July, capex was higher in FY18, compared with April-July in FY17.

“The slowdown in spending in August 2017 prevented a larger slippage in the fiscal deficit, relative to the level at end-July,” said Nayar.

Recently, economic affairs secretary Subhash Garg had said that the Centre’s  borrowing programme will be re-assessed in December, based on spending needs.

Any increase in the borrowing programme raises the possibility of higher-than-budgeted spending by the Centre, and a fiscal expansion if the corresponding revenues are not realised.

Finance Minister Arun Jaitley has asked State-owned companies to spend an additional Rs 25,000 crore in capital expenditure this fiscal year.

This would take the combined capex of the Centre and PSUs to Rs 4.10 lakh crore from Rs 3.85 lakh crore.

Photograph: Reuters.

Arup Roychoudhury in New Delhi
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