For the fourth year in 2013-14, the erstwhile UPA government managed to end the year with a fiscal deficit below the RE level which in turn was less than BE level. Thus, thanks to a record Rs. 911 billion surplus (net negative deficit) in March, due to improved non-debt receipt on one hand and y-o-y decline in disbursement on the other, annual increase in deficit came down from 28 per cent till December to only 4 per cent by the end of the year, which is lower than 7 per cent assessed in RE.

Fiscal deficit is the gap between total disbursements and non-debt receipt which is bridged by net borrowing, including external raisings. Even as the government took credit for achieving fiscal consolidation, its quality was lacking in several ways. Thus, fiscal deficit containment was achieved through cutback in expenditure, mainly plan account disbursements. While actual non-plan account expenditure remained stubbornly at around 99 per cent of RE, the share of plan account in its RE was subdued at around 95 per cent.

The growth rate in the Indian economy came down from 8.9 per cent in 2010-11 to 4.7 per cent by 2013-14 and project investment, as measured by gross fixed capital formation, fell from 11-12 per cent in 2010-11 and 2011-12 to stagnation in 2012-13, and a decline in 2013-14. Apparently, even as fiscal consolidation improved in these years, the containment of budget spending did not support a sliding economy.

KEY FISCAL INDICATORS (Rs. CRORE)

2010-11

2011-12

2012-13

2013-14

Non-debt receipt 823,737 788,096 920,181 1,055,336
Non-plan expenditure 818,299 891,990 996,744 1,110,400
Plan expenditure 379,029 412,375 413,627 453,085
Deficit 373,591 516,269 490,190 508,149
% to RE
Non-debt receipt 101 98.9 101.1 99
Non-plan expenditure 99.6 100 99.5 99.6
Plan expenditure 96 96.7 96.4 95.3
Deficit 93.2 98.9 94.1 96.9

By the way, phasing of government expenditure over the months has improved over the years and the increase in last quarter has come down noticeably. However, in past two-three years, the last quarter has seen a severe cramp in government disbursements that reflects efforts by the Ministry of Finance to meet fiscal deficit targets in the face of slowing economy and fiscal receipt. In the initial quarters, disbursements outpace receipt, but as the year progresses fiscal receipt accelerates partly reflecting hectic revenue mop-up measures to meet fiscal deficit goals.

Non-debt receipt short of RE
Non-debt receipt grew 15 per cent during 2013-14, slowing from 17 per cent during the preceding year and falling short of RE for the year. In the previous year, actual receipt had surpassed RE due to higher than expected interest receipt and PSU equity sale. Net tax receipt increased 10 per cent during 2013-14, against 17 per cent in the receding year. The growth rate in receipt during H2 at 13 per cent was twice the pace in H1. Corporate tax collection grew 11 per cent over the year, customs duty 4 per cent, service tax 18 per cent and personal income tax 21 per cent, whereas reflecting a highly subdued industry, excise duty collection declined 4 per cent.

Non-tax receipt shot up 45 per cent to Rs. 199,233 crore, three times the rate in 2012-13, reflecting the efforts by the finance minister to make up for the slower growth in tax receipt. Reflecting the directive to central PSUs to be extra liberal in dividends, profits and dividend receipt shot up 68 per cent to Rs. 90,437 crore. This is effectively a punitive tax on central PSUs. Interest receipt grew 7 per cent to Rs. 22,407 crore.

Capital receipt declined by 2 per cent during the year to Rs. 40,057 crore. PSU equity sales totalled to Rs. 21,992 crore (Rs. 25,890 crore). As in 2012-13, most of the equity sale was in last two months of the year, effected at suboptimal valuation in several cases in a desperate effort to achieve fiscal deficit target. In some cases, constituting effectively inter-PSU equity transfers, the fundraising was like window-dressing in the budget exercise, but this curbed capex plans of investing PSU.

Ruthless cutbacks in expenditure
Helped by 12 per cent y-o-y reduction in January and 14 per cent in March, the annual growth rate in total expenditure was brought down from 17 per cent till December to 11 per cent by end of the fiscal, less than 13 per cent placed in RE given out in Interim Budget 2014-15 presented in February last.

The axe fell mainly on plan expenditure, which, due to a 27 per cent steep reduction in March, in addition to 11 per cent in January, resulted in a lower growth of 9.5 per cent at year-end, against 18 per cent till December. The growth rate was much lower than 15 per cent assessed in Interim Budget. Revenue expenditure increased by 7 per cent, half the rate in plan account capex.

Ministries with considerable under-spend included Ministry of Water Resources 24 per cent (21 per cent in 2012-13), Ministry of Tourism 19 per cent (19 per cent), Ministry of Textiles 20 per cent (20 per cent), Department of Rural Development (gross) 40 per cent (51 per cent), Ministry of Power 10 per cent (51 per cent), Ministry of MSME 13 per cent (20 per cent), Department of School Education and Literacy (gross) 18 per cent (20 per cent), Transfers to UTs and state governments 18 per cent (3 per cent), and Department of Telecom 33 per cent (nil).

CENTRAL GOVERNMENT FINANCE: BUILD-UP BY QUARTER END (%)

Non-debt receipts

Total expenditure

Gross fiscal deficit

Revenue deficit

2013-14
First Q 11.3 24.4 51.7 58.4
Second Q 37.6 51.7 81.1 89.4
Third Q 61.3 74.4 101.6 103.0
fourth Q 100.0 100.0 100.0 100.0
Total (Rs. billion) 10,553 15,635 5,081 3,603
2012-13
First Q 13.2 22.1 38.9 41.9
Second Q 38.8 49.2 68.7 72.3
Third Q 63.7 70.3 82.6 81.8
fourth Q 100.0 100.0 100.0 100.0
Total (Rs. billion) 9,202 14,104 4,902 3,643

Cut in non-plan expenditure
Even as the last three months of 2013-14 witnessed sharp y-o-y cutbacks, the annual growth in non-plan expenditure worked out to 11 per cent, and the total disbursement fell only marginally short of RE for the year, falling between RE and BE for the year.
Interest payment of Rs. 3.78 trillion increased by 21 per cent, though the amount was a tad lower than RE. The Ministry of Defence (Rs. 2.54 trillion) and Defence Services (Rs. 2.03 trillion) including Defence Capital Outlay (Rs. 0.79 trillion) met RE. Defence and interest payments absorb three-fourths of non-plan expenditure, non-plan transfers to UT and state governments which account for around 5 per cent of total non-plan expenditure saw 2 per cent under-spend and police (Rs. 439 billion) about 3 per cent under-spend. Non-plan expenditure of the Ministry of Petroleum & Natural Gas (Rs. 854 billion), largely fuel subsidy; Department of Food & Public Distribution (Rs. 927 billion), largely food subsidy matched RE; whereas Department of Fertilisers (Rs. 674 billion), largely fertiliser subsidy fell 1 per cent short of RE. According to reports, former finance minister P. Chidambaram has rolled over about Rs. 350 billion of fuel subsidy to 2014-15.

Trends for 2014-15
In the meantime, gross fiscal deficit increased by 21 per cent to Rs. 1,135 billion in April 2014, as compared to 39 per cent a year ago. Total disbursement was 19 per cent more, whereas non-debt receipt was running 12 per cent lower annually during the month.

Conclusion
Fiscal discipline is, no doubt, important as fiscal deficit contributes to domestic inflation and current account deficit in external business. However, quality of fiscal consolidation is also important, and moreover reduction in fiscal deficit should not become an end in itself. Fiscal policy should be subservient to overall economic interests of the country. Thus, a steadily losing economy may merit some extra government capex spend even at the cost of some slippages in fiscal deficit targets.


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