As per Interim Budget (vote on account) revised estimates of FY14 fiscal deficit is pegged at 4.6 per cent of GDP as against a Budget estimate of 4.8 per cent.
The noteworthy aspect of fiscal deficit has been an absolute decline in the quantum of fiscal deficit. Revised estimate of FY14 fiscal deficit at ₹5,24,539 crore is 3.3 per cent less than the budgeted amount.
How this has been possible when the real GDP growth has fallen to 4.9 per cent from 6.5 per cent assumed in the preparation of FY14 Budget?
Manufacturing sector Indian manufacturing is witnessing one of the worst slowdown in recent time.
As per the advance estimates, manufacturing sector is likely to contract by 0.2 per cent in FY14. Tax revenue although increased from FY13 but declined by ₹48,052 crore from FY14 Budget estimate.
Non-tax revenue (higher dividend and profits, interest receipts and spectrum auction) is likely to compensate slippage in tax revenue and would be higher by ₹20,974 crore than the budget estimate.
As a result slippage on revenue receipts has been estimated at ₹27,079 crore. A slippage of ₹27,079 crore on account of revenue receipt, ₹29,973 crore on account of disinvestment and yet achieving a reduction of ₹17,960 crore in fiscal deficit became possible due to severe expenditure cut.
We have witnessed similar expenditure compression in FY13 also leading to improvement fiscal deficit from budgeted levels.
Non-Plan expenditure Although non-Plan expenditure witnessed an increase of ₹4,927 crore, non-Plan capital expenditure contracted by ₹29,853 crore (25.5 per cent) from FY14 budget estimates.
Similarly, Plan expenditure was lower by ₹79,700 crore (14.4 per cent) from FY14 Budget estimate. This has resulted in both revenue and capital expenditure declining from their budgeted figures by 2.6 per cent and 16.7per cent, respectively.
Only non-Plan revenue expenditure has increased by ₹34,781 crore. Slippage in subsidy and interest payment accounted for 97.2 per cent slippage in non-Plan revenue expenditure.
A sharper cut in Plan revenue expenditure has resulted in compression of revenue deficit by ₹9,550 crore.
Reduction in grants for creation of capital assets was responsible for cut in Plan revenue expenditure in FY14 (grants for creation of capital assets lower by ₹53,373 crore compared with budget estimate).
Cut in grants At a time when investment sentiments and activities are low, a cut in grants for creation of assets is not the best way to control fiscal and revenue deficit.
This is another testimony of problems with project implementation and will have a negative impact on medium- to long-term growth prospects of the economy.
The writer is Chief Economist, India Ratings and Research (Ind-Ra). The views are personal.