Finance minister P. Chidambaram has managed to show the fiscal deficit for FY14 at 4.6% against the targeted 4.8%, but only after sacrificing the government's investment spending (capital expenditure) by Rs 35,234 crore and deferring subsidy payments of Rs 1.1 lakh crore to next year.
The government cut plan capital expenditure to Rs 8,381 crore from Rs 1,12,062 lakh crore budgeted earlier and non-plan capital expenditure to Rs 29,833 crore from Rs 1,17,067 crore estimated previously. It had cut capital spending by about Rs 38,000 crore in 2012-13, too, against the budgeted Rs 2,04,816 crore.
In fact, non-plan capital expenditure, which grew an annual 72% in 2007-08, declined to 24% in the subsequent year as the government's fiscal stimulus focused on revenue spending. This again showed a big increase of 45% in 2010-11 but declined 1.4% next year.
Since then, the annual growth has been moderate as the economic slowdown undermined the government's ability to spend more on growth-creating ventures. Capital spending on the plan side has all along been growing at rather unimpressive rates.
Analysts say the deferring of expenses that have already been incurred is not a healthy practice as it would hurt the already low growth rates further.
The government was forced into cutting productive spending and delaying subsidy payments, partly because it could not fully reform the pricing of petroleum products. Price controls on the most commonly used fertiliser urea continues while the decontrol of P and K fertilisers has been partial, with the subsidy, though fixed, being still there.
Although government has announced plans to deregulate diesel prices, PSU oil marketers are still weighed down with a revenue loss of Rs 7.39 a litre on the fuel.
The government has allowed companies to pass on an increase of Rs 0.50 a litre to consumers, but at this pace it will take at least 15 months more for diesel prices to be fully market-determined (assuming rupee and oil prices don't vary widely). Under political pressure, the government had to partially roll back the LPG price reform.
The relative softening of global crude prices helped a bit, but rupee's weakness has been a negative. The direct benefit transfer, which could allow savings of Rs 50,000-60,000 crore in subsidies, rationalisation of the spending on some of the flagship social sector schemes and use of technology to reduce leakages would help increase quality of government spending.
Renewed focus on cheap energy (more efficient domestic production, exploration of newer sources like shale gas, creation of economically rewarding overseas oil, gas assets and cheaper imports) is an imperative.