+ Font Resize -

 

CENTRAL GOVERNMENT FINANCE
The Central government ended 2008-09 with a fiscal deficit of Rs 3.30 trillion (provisional estimate) according to CGA data, nearly two-and-a-half times the budgeted amount of Rs 1.33 trillion, indicating the sharpest misses in recent years. The ratio of deficit to GDP at market prices shot up to 6.2 per cent, reversing all the improvements in reduction in the ratio since 2001-02. Lower receipt due to the economic slowdown and duty cuts caused one-third of the overshooting of deficit, while extra disbursements due to stimulus packages, pay commission award and farmers' loan writeoffs the two-thirds. Non-debt receipt fell short by Rs 662 billion, while expenditure overshot budget allocation by Rs 1,306 billion. Revenue deficit burgeoned 3.7 times to Rs 2.47 trillion due to more revenue account disbursements compounded by lower revenue receipt. Total expenditure of Rs 8.81 trillion turned out to be around 2 per cent less than that placed in revised estimates (presented in interim budget on  February 16), but fiscal deficit exceeded RE by 1 per cent, as tax receipt fell short by a higher 4 per cent.

 

Fiscal deficit which was around 26 per cent more annually in H1 shot up in the second half that recorded five times higher deficit on y-o-y basis. Unlike in recent past, where fiscal deficit in second half worked out to a half of that in the first half due to better receipt, relative to disbursements, 2008-09 witnessed doubling in deficit in the second half due to truncated receipt and mushrooming disbursements. Incidentally, the fiscal deficit would work out much higher to around Rs 4.26 trillion, if we adjust the government data for issue of Rs 759 billion of oil bonds issued to oil marketing companies and Rs 200 billion special securities to fertiliser companies which are not part of fiscal deficit as per government accounting system.

Receipts slowdown: Revenue receipt gave Rs 5.45 trillion, which was 10 per cent short. Tax receipt was responsible for this under-performance as non-tax revenue receipt of Rs 969 billion exceeded budget expectations. Tax receipt was running 24 per cent higher in H1; the second half saw the collection declining 11 per cent on annual basis, with the result the growth rate plummeted to 3 per cent by the end of the year-the lowest annual pace over past six-seven years. Customs duty and excise duty collections dropped annually over December 2008-March 2009, which broadly reflected the worst phase of the downturn. Corporate tax and income-tax yield also fell steeply in December. Significantly, service tax collections have run higher throughout the year (barring December 2008). Non-debt capital receipt (Rs 67 billion) netted less than half of the expected amount due to PSU disinvestment failing to materialise.

Disbursements shoot up: Total disbursements escalated 24 per cent during 2008-09. Most of the rise was concentrated in the second half that showed 35 per cent splurge, against 9.8 per cent in the first half. November and December witnessed nearly doubling of expenditure (mostly non-plan expenses) due to stimulus packages. Interest payment increased much slower by 11 per cent due to relatively low interest rates. Plan account expenses increased by 34 per cent over the year, with the first half notching around 25 per cent. Revenue account disbursements escalated 25 per cent in the first half and a higher 40 per cent in the second half. Plan account revenue disbursements mounted 35 per cent, while non-plan revenue account expenditure increased by 32 per cent during the year. Plan account capex increased by 28 per cent during 2008-09 and, more importantly, the growth came in second half.

Three-fifths of plan account disbursements happened in the second half of the year, though the distribution by period was uneven in ministries. Thus, on one hand, only about 30 per cent of plan allocation for department of agricultural research and education took place in the second half, nuclear power schemes on the other had 79 per cent of annual disbursements focused in the second half.

Budget 2009-10
The economy is likely to repeat the under-performance of 2008-09 with resultant blocks to revenue receipt. With a resolve to contain, if not reduce, fiscal deficit, this would pose a major constraint to major disbursement hikes. Thus, whereas PSU equity disinvestment and sources like 3G spectrum and NELP auctions could be targeted to yield significant receipt, it would appear that the  forthcoming Budget would contain announcements more of reforms, non-budget resource flows and easing various impediments to infrastructure investment, than major step-ups in  disbursements, or tax breaks.

Meanwhile, gross fiscal deficit shot up by 64 per cent to Rs 54,158 crore in April. Total disbursements escalated 43 per cent to Rs 66,217 crore; non-plan expenditure rose 60 per cent but plan expenditure by a relatively modest 14 per cent. Tax receipt (Rs 7,462 crore) yielded 32 per cent less.

Printer-Friendly Version E-mail This Article