Spending boost sees fiscal deficit surge to 70% of estimate in April-July period

The government’s fiscal deficit has gone up to nearly 70 per cent of the Budget Estimate during first four months of the current fiscal year.

However, the good news is that the capital expenditure has increased significantly, which means more money can be spent on developmental activities.

According to latest data of Controller General of Accounts (CGA), fiscal deficit during April-July period exceeded ₹3.80 lakh crore out of the Budget estimate of over ₹5.55 lakh crore.

This deficit is mainly due to higher expenditure which is over 33 per cent in first four months of the current fiscal as against little over 28 per cent during corresponding period of previous fiscal.

However, the Plan expenditure touched nearly 34 per cent of the Budget estimate as against 23 per cent during previous fiscal. Of the Plan expenditure, capital expenditure was over 38 per cent of the Budget estimate (23 per cent). More capital expenditure will encourage private investment, which is expected to boost growth.

Higher spending was possible due to good growth in revenue. While tax revenue reached around 16.7 per cent of the Budget estimate as against 15 per cent during the previous fiscal, non-tax revenue showed much better growth with mobilisation of almost 25 per cent of the Budget estimate as against 13.5 per cent during previous fiscal.

Aditi Nayar, Senior Economist with ICRA, said that fiscal deficit in the first four months of 2015-16 is a substantial 19 per cent larger than the corresponding figure for 2014-15.

However, the quality of the fiscal outcome has improved, with a decline in the proportion of the revenue deficit within the fiscal deficit to 72 per cent in April-July 2015 from 82 per cent in April-July 2014, she said adding that growth of capital expenditure has fast outpaced the expansion in revenue expenditure in the first four months of this fiscal.

“The widening of the fiscal deficit relative to the previous month is partly led by a broad-based uptick in outgo of major subsidies, including fuel, fertiliser and food. Notwithstanding the healthy expansion in indirect taxes, the subdued performance of direct taxes in April-July 2015 is disconcerting.

The double-digit growth of corporation tax collections in July 2015 provides limited comfort, given the small base,” she said.

Devendra Kumar Pant, Chief Economist with India Ratings & Research, felt that low crude oil price and increased buoyancy of customs and excise is providing some comfort.

“The government has front loaded Plan capital expenditure (84.1 per cent growth), this will help in improving investment sentiments,” he said.