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Dark spots in bright show
Fiscal deficit target met but at a cost

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Finance minister P. Chidambaram along with deputy ministers Namo Narain Meena (right) and J.D. Seelam (left) in New Delhi on Monday. Picture by Yasir Iqbal

New Delhi, Feb. 17: The good news first: fiscal deficit for the current fiscal will be contained at 4.6 per cent of the gross domestic product (GDP) — well within the red line of 4.8 per cent set last year. Moreover, the interim budget sees fiscal deficit at 4.1 per cent of GDP in 2014-15.

Now the bad news: the fiscal deficit has come down not because the government succeeded in its deficit control measures but because it managed to defer subsidy payouts, cut plan expenditure, get higher-than-expected revenues from 2G spectrum sale and assumed higher revenue receipts in the fourth quarter of the current fiscal.

To add to the discomfort, a massive 27 per cent jump is projected in food subsidy at Rs 1,15,000 crore in 2014-15 against Rs 90,000 crore in the budget estimates for 2013-14.

The fuel subsidy bill in 2014-15 has been slashed to Rs 63,426 crore from the revised estimate of Rs 85,480 crore in 2013-14.

But one has to read the fine print of the interim budget to realise that there’s a fudge in the fuel subsidy in the current fiscal because Rs 35,000 crore of subsidy that ought to have been paid out in the fourth quarter (January-March) has been shovelled into the next year, which will severely cramp the elbow room of the new government in dealing with this emotive issue.

“We have this year (2013-14) absorbed the rollover of Rs 45,000 crore from the fourth quarter of 2012-13 (fiscal) and we will roll over only Rs 35,000 crore from the fourth quarter of this year into the next year,” finance minister P. Chidambaram said.

He also did not give any indication on when the Centre planned to charge market rates for diesel. Last June, the government had taken an in principle decision to levy market rates for diesel (as it does for petrol) but has not been able to bite the bullet because it would hurt it politically.

The overall subsidy bill is expected to rise by just 2 per cent to Rs 2,55,708 crore in 2014-15 from Rs 2,31,084 crore in 2013-14.

By severely cramping the new government’s elbow room on subsidies, the UPA government may be queering the pitch for it in achieving the broad objective of fiscal consolidation and capping fiscal deficit at 4.1 per cent of GDP as projected in the interim budget documents.

On the face of it, Chidambaram seems to suggest that he has reined in the ballooning deficit, but the numbers give out the hard work that is helping the finance minister keep within his self imposed “red line”.

Plan expenditure — the money spent on creating assets through centrally sponsored programmes — was reduced 14.37 per cent to Rs 475,532 crore.

The government’s revised tax revenue of Rs 836,026 crore for 2013-14 was 5.4 per cent less than the budget target of Rs 884,078 crore, while non-tax revenue increased 12.2 per cent to Rs 193,226 crore because of higher revenues from spectrum auctions.

The government also achieved its revenue deficit target of 3.3 per cent in 2013-14 by significantly curbing plan revenue expenditure, which was reduced by 16.1 per cent to Rs 370,288 crore.

Experts, however, feel that while the assumptions for 2013-14 can be called optimistic, they are downright aggressive for the next fiscal. Chidambaram has estimated revenue growth at 18 per cent, GDP growth at 6 per cent and fiscal deficit at 4.1 per cent of GDP.

“The question is whether the 4.1 per cent fiscal deficit number is credible. We believe the government’s revenue projections — both on asset sales and on tax revenues — look very optimistic,” Nomura’s Sonal Varma said.

“Even the allocation on fuel subsidy appears to backfire as diesel under-recovery itself would be around Rs 80,000 crore,” Deloitte India senior director Debashish Mishra said.

“While there has been no decline in subsidy and it is just a reallocation of plan expenses between the various heads, still the finance minister expects the magic of the fiscal deficit reduction to happen,” Shailesh Haribhakti, chairman of DH Consultants, said.

Deepak Mahurkar, leader (oil & gas), PwC India, said, “The provision for lesser petroleum subsidies will necessitate the government to pass on more cost of crude to diesel and PDS (LPG and kerosene) consumers.”

 
 
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