Govt. capex 11% lower till December

The usual quarterly increase in tax receipt in December failed to bring down the fiscal deficit, with the result that the three quarters’ cumulative deficit has already overshot the annual budgeted borrowing for the ongoing fiscal; this period in the preceding two fiscals had seen 95.2 per cent and 78.8 per cent, respectively of the annual budgeted deficit, effectively the net borrowing required to bridge the gap between expenditure and non-debt receipt.

With the avowed resolve of the finance minister to stick to fiscal prudence target, the last quarter is set to see frenzied activity to mobilise additional resources through coal block auctions, spectrum auctions, PSU equity investment etc. as tax receipt is not likely to lend a major helping hand, given the slack in the economy. The government has already netted Rs.22,558 crore through OFS in Coal India Ltd. The usual last quarter rush to spend budget allocations would also probably be subdued this year.

Overall, it seems likely that the finance minister would be able to achieve his 4.1 per cent target of fiscal deficit (as a ratio of GDPmp) for the ongoing fiscal, thanks to several one-time receipts on the one hand and some disbursement squeeze on the one hand.

Restrained economy hits tax receipt
A sedately placed economy has hit the fiscal receipt of the government. The growth rate in gross tax receipt dropped to 7 per cent over April-December 2014, from 9 per cent in the corresponding period of 2013-14 and 15 per cent in the similar period two years back. Corporate tax increased 6 per cent, personal income tax 8 per cent and customs duty 9 per cent. However, indicating eroding manufacturing, excise duty collection stagnated at year-ago level, notwithstanding a welcome 19 per cent gush during December.

In a worrying development, service tax which had increased at 14 per cent during H1, rose 3-4 per cent only in October-November, and declined 6 per cent y-o-y in December, which pushed down the cumulative growth to 8.5 per cent. Service tax collection had increased much faster at 20 per cent in the first nine months of the preceding fiscal and 33 per cent in this period two years back.

Non-tax receipt increased 27 per cent during April-December 2014, over 34 per cent rise over the corresponding period of the preceding fiscal. The feat was made possible by extra-large dividends forked out of Central PSUs and RBI profits to make up for shortfall in tax receipt growth. Capital receipt, particularly PSU equity disinvestment, fell terribly short of budget expectations till December; the next quarter is likely to see lots of action on this front to meet the budget target.

Expenditure slows; capex declines
Central government expenditure increased 6.2 per cent during April-December, slowing from 17 per cent in the similar period of 2013-14 and 11 per cent during this period two years back. Plan expenditure stagnated at year-ago level, against 19 per cent increase over the first three quarters of 2013-14. Non-plan expenditure was up 8.8 per cent, half the rate in the comparable period a year ago. Revenue expenditure, which constitutes four-fifths of government disbursements, increased 9 per cent, where as capital account disbursement declined 11 per cent. Defence capital outlay ran 15 per cent lower till December.

In plan expenditure, Ministry of Water Resources could spend only 26 per cent of its annual allocation by December; Ministry of Communication & IT could disburse 35 per cent and Ministry of Housing & Urban Poverty 37 per cent. Ministry of Panchayati Raj, Ministry of Power and Ministry of Urban Development (43-48 per cent) were among the other ministries with marked under spending.

Growth in deficit also falls
In an interesting feature of government finance, even as fiscal deficit has already overshot the annual target, it has been growing much slower than in recent years. Thus, unlike in the first nine months of the preceding year, which had seen 28 per cent rise in gross fiscal deficit, the similar period in the ongoing fiscal has seen only around 3 per cent y-o-y increase in net borrowing.