With the subsidy bill rising, the Finance Ministry has sought the help of other Ministries to cap the fiscal deficit at 4.8 per cent of the GDP, a target set in this year’s Budget proposals.
The message was conveyed at a meeting Finance Minister P. Chidambaram had with the financial advisors of the Ministries concerned. Giving a sense of the discussions, Minister of State in the Finance Ministry J. D. Seelam said the Ministries had been told to “not cross the red line of 4.8 per cent (fiscal deficit) and help the Government contain it.”
Some of the financial advisors who attended the meeting said the Finance Minister had asked them not to overshoot budgetary targets. They were also urged not to bring in any fresh expenditure proposal.
Overshooting target
The meeting has come at at a time when the deficit has touched Rs 3.42 lakh crore, nearly 62 per cent of the Budget target of Rs 5.42 lakh crore, in just four months (April-July) of the current financial year, according to data by the Controller General of Accounts. The level is much higher than the corresponding period in FY13, when it was at a little over 51 per cent of the target.
The increase in deficit was mainly due to lower growth in tax revenue against an increase in expenditure. The Government managed to mobilise a little over 16.5 per cent of the Budget target, but its expenditure went up by over 31 per cent. Plan expenditure (expenditure on development) has seen good growth while non-Plan expenditure (expenditure on subsidy, interest etc) remained constant.
Govt Borrowings
“This meeting was not to cut expenditure. We told the Departments (under various Ministries) to push expenditure within the budgetary allocations,” Seelam said, adding that the Ministry had also sought utilisation certificates from various Ministries.
The Finance Ministry and the Reserve Bank of India are expected to meet next week to finalise the borrowing calendar for the second half of the fiscal year, starting October 1, although, indications are that it is unlikely to exceed the borrowing target for the year.
Since it has already set a target of borrowing Rs 3.49 lakh crore in the first half (April-September) out of the targeted Rs 5.79 lakh crore, it is likely to raise only a further Rs 2.30 lakh crore in the second half.
This will be done through auction of Government Securities (G-Secs) in which even retail investors are permitted to participate.
The Government’s long-term borrowing is done mainly through G- Secs, which carry varying interest rates and are issued for terms of more than one year. For the new fiscal, the Government and RBI have decided to issue bonds for maturity periods ranging from five to 20 years, and more.