Fiscal deficit at 85% of BE but GDP data points to expenditure compression by govt

Nov 30 2013, 15:53 IST
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SummaryThe data only reflects what has been accounted for.

Even as the Centre’s fiscal deficit shot up to nearly 85 per cent of its full year target by October this year, second quarter estimates on gross domestic product (GDP) points to a sharp compression in government finances through lower spending and efforts to contain the subsidy bill but has raised concerns over its impact on growth.

The Centre’s fiscal deficit touched Rs 4,57,886 crore or 84.4 per cent of its Budget estimate of Rs 5,42,499 crore between April and October, 2013 on the back of slowing tax revenue and non-debt capital receipts outpaced expenditure. It was marginally lower at 76 per cent till September-end.

Significantly, the data by the Controller General of Accounts does not account for subsidies for selling diesel and cooking fuels at below cost.

But data released by the Central Statistics Office on Friday revealed that major subsidies have shown a sharp contraction in the second quarter of this fiscal compared to a year ago. “There has been a decline in the growth of major subsidies from 97.9 per cent in Q2 of 2012-13 to (-)10.5 per cent in Q2 of 2013-14,” the CSO said in a release on second quarter GDP estimates.

“The data only reflects what has been accounted for. Oil subsidy may be higher than accounted, but the contraction in subsidies reflects the periodic hike in diesel prices. Further, just like it did in 2012-13, the government may choose to roll over fuel subsidy payment for this fiscal to next fiscal,” said NR Bhanumurthy, an economist with NIPFP.

The data also revealed that government final consumption expenditure grew at its slowest pace in 18 quarters at 8.39 per cent in the second quarter of the fiscal.

More worryingly, the sharp compression in government spending was also evident in the growth in community, social and personal services segment that rose by 4.2 per cent in the second quarter as compared to 9.4 per cent in first quarter.

“With concerns mounting on the fiscal front, there seems to have been a sharp contraction in government spending,” said DK Joshi, chief economist, Crisil, adding that it would impact economic growth. Finance minister P Chidambaram has maintained that the fiscal deficit target of 4.8 per cent in 2013-14 is a “red line that can not be breached”.

Any fiscal slippage could be seen as further deterioration in the economic scenario by international rating agencies that have been threatening to downgrade

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