Despite the economic slowdown, Monday’s interim Budget will likely show the Centre’s FY14 fiscal deficit being a trifle lower than the projected 4.8% of GDP. It could also reveal that the revenue deficit target of 3.3% has not been met despite unexpected gains from the 2G spectrum auction and the milking of Coal India and some other cash-rich PSUs.
Finance minister P. Chidambaram may announce a 4.2% fiscal deficit target for FY15 and gross marketing borrowings for the year at close to Rs 6 lakh crore, figures likely to be reviewed by the next government in July’s full-year Budget. The markets have seen a 920.55-point fall so far in 2014 and could somewhat discount the interim Budget’s borrowing numbers.
A jump in small savings collection has allowed the government to reduce gross market borrowings this year to Rs 5.64 lakh crore from Rs 5.79 lakh crore estimated earlier and yet seemingly have a big cash surplus.
Like last year, Chidambaram appears to have leashed in growth-inducing capital expenditure to report that his deficit-cutting plan hasn’t faltered. Given the restraint even in FY12, this implies a flattening of capital spending growth (negative growth in real terms) for three consecutive years.
The cut in total expenditure could be of around R70,000-80,000 crore from the budgeted Rs 16.65 lakh crore.
Chidambaram will flag the improvement in the two most-watched deficit numbers — the fiscal and current account deficits — and also outline an economic plan to be pursued by the the UPA if voted back to power.
The task before the next government, whatever its political hue, will primarily be to restore revenue-led fiscal consolidation seen between 2005 and 2008 during the UPA-I regime. Even the Reserve Bank of India has been sceptical about the sustainability of reining in the fiscal deficit through cuts in productive spending.
However, with niggardly growth in tax revenue due to the economic slowdown, a spurt in interest payments and grossly inadequate controls on subsidies, the minister has had few other options.
Tax revenue, which accounts for over four-fifths of the Centre’s revenue receipts after transferring a third of the collections to states, is believed to have grown at a much lower rate than the targeted 19.2% (during April-December, gross tax receipts grew 9.15% only; of course, as is customary, the last few weeks could see collections pick up, but the gap is too big to be bridged).
Interest payments projected