In what could be seen as a positive signal for rating agencies, Finance Minister P. Chidambaram has managed to bring in the fiscal deficit for the current year at 10 basis points lower than the revised target. He has also set a lower target for 2013-14.

“The fiscal deficit for 2012-13 has been contained at 5.2 per cent. I propose to bring it down to 4.8 per cent by 2013-14,” Chidambaram said in his Budget speech in the Lok Sabha. Although the last Budget proposed fiscal deficit at 5.1 per cent initially, during the year, it was revised upward to 5.3 per cent.

Interestingly, the lower deficit for 2012-13 is not due to higher revenue, but due to reduction in expenditure, more precisely Plan expenditure.

The Budget documents showed that the Finance Ministry managed to lower the Plan expenditure by over Rs 91,000 crore in the current fiscal. However, an increase in subsidies along with other non-Plan expenditure restricted the overall expenditure at a little over Rs 60,000 crore.

Analysts believed that cut in the expenditure is mainly because of the lower spending by various ministries. That resulted in lower provision than the revised estimate for expenditure in the next fiscal that is 2013-14.

On the revenue front, apart from the assumption of tax buoyancy in case growth picks up, hopes are pinned on spectrum auction and proceeds from disinvestment and sale of residual stake in erstwhile PSUs. The Finance Ministry has targeted to earn Rs 40,000 crore from disinvestment and Rs 14,000 crore from selling its residual stakes.

According to the Fiscal Policy Strategy Statement, “The reform process undertaken in the current year forms the basis of fiscal policy of the Government during 2013-14. Proactive policy decisions, contained Government spending to provide space for private investment, along with reforms to attract capital inflows are expected to be key drivers of growth revival during 2013-14.”

Accordingly, having made the base corrections on the expenditure front, fiscal policy of the Government in 2013-14 is aimed at continuing with the trend by providing for an “affordable and realistic” growth of 6.6 per cent for Plan expenditure.

“At the same time, revenues are targeted to grow at an improved 10.9 per cent, through additional resource mobilisation as well as bringing out improvements in overall tax administration, there by bringing down the fiscal deficit to the projected levels of 4.8 per cent,” the statement said.

Talking about tax GDP ratio, the statement said that with moderation of growth rate in 2012-13, the tax-GDP ratio has been revised to 10.4 per cent.

“Continuing on the path of fiscal consolidation with a view to narrowing the gap in Government spending and resources, the tax-GDP ratio has been targeted at 10.9 per cent in the BE 2013-14 with a growth rate of 19.1 per cent,” the statement said while adding that this includes additional resource mobilization, while maintaining pro-growth stance.

> Shishir.Sinha@thehindu.co.in

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