Comment

Revenue, fiscal deficits down from year-ago levels; ministries unlikely to meet spending targets

MUMBAI: The trend in Union finances as of November 2007 presents a mixed picture. In overall terms, tax receipts have remained buoyant, clocking a growth rate of 25%; plan spending as a proportion of the budget allocations has been higher than what it was a year ago at 55% as against 53% while non-plan expenditure seems to be contained at 63%;both revenue and fiscal deficits are down even in absolute terms via-a-vis their earlier levels, with the revenue gap placed at Rs 69,974 crore (Rs 84,483 crore) and the overall expenditure-receipts mismatch at Rs 96,274 crore (Rs1,08,201 crore).

The use of borrowed funds to bridge the current account shortfall is also lower at 73% thus far than what it was during the same period of 2006-07-78%.

But the bad side of the good news is that, during the first eight months of the current fiscal, Centre’s market borrowings have surpassed the target for the entire year and the pattern of financing the fiscal deficit is far different from what was envisaged in the fiscal policy. Several ministries have turned out to be remiss in the use of plan allocations and even defence capital outlay utilised as of now works out to a bare 19% of the year’s apportioned sum.

On the receipts side, mobilisation from direct taxes has recorded a very high rate of increase during the April-November 2007 period as compared to the same period of last year. Corporation tax collections were higher by an impressive 42% and the yield from income tax surged by 38%.

But, the trend in indirect tax mop-up was rather disconcerting, with the rate of growth from customs being only 17% while Union excise duties were a laggard, with a rise of a mere 4%.

This tepid performance in regard to both these taxes seems rather odd, considering the fact that imports have registered a good pace of increase in the ongoing fiscal while, by all accounts, manufacturing has fared well in terms of incremental rate of growth in output.

As regards expenditure, a positive feature is that plan spending during the first eight months of 2007-08 has proceeded at a faster pace than non-plan spending when compared to the preceding fiscal -24% versus 22%.

But, when worked out as a percentage of the total expenditure, plan spending has been rather static in both the years at 27%. This suggests that the government has been able to rein in non-plan expenditure during the current year-or, at least, during the April-November 2007 period.

Further probing of the budgetary data that is available to date also reveals that the exchequer had benefited to the tune of around Rs 3,000 crore which was not anticipated when the fiscal policy was formulated.

Recovery of loans and advances (net) was of the order of Rs 2,768 crore against a provision of Rs 1,500 crore in the budget while an additional bonanza emanated from the disinvestments of government’s equity holdings in public enterprises; under this head, while the projected sum was Rs 1,651 crore, the actual realisation was of the order of Rs 3,392 crore.

In view of the proverbial leads and lags in revenue and expenditure, the fiscal position as of end-November 2007 could change in the ensuing months - normally a period of brisk pace in both receipts and spending. But, even as of now, certain disturbing developments are in evidence. Take the matrix of financing the fiscal deficit.

While the budget had envisaged market borrowings to the extent of Rs 1,11,327 crore or 74% to meet the fiscal deficit of Rs 1,50,948 crore for 2007-08 and other borrowings - mainly small savings, special deposits, reserve funds and the like - aggregating to Rs 30,510 crore or 20% with foreign aid accounting for the rest, this projectionhas gone haywire of now.

Market borrowings have already exceeded the budget estimate and stood at Rs 1,15,193 crore at the end of the first eight months and accounted for 120% of the fiscal deficit for this period ( Rs 96,274 crore); on the other hand, other borrowings did not materialise. Instead, there was a net outflow aggregating to Rs 38,032 crore so that this item made a negative contribution of 39% which was quite the opposite of what was assumed. In the event, the Centre was obliged to run down its cash balance to the extent of Rs 15,306 crore to meet the fiscal deficit-this contingency was not visualised in the budget at all, though this practice is not uncommon.

Another aspect that should engender concern is the poor record of utilisation of Plan funds that are sanctioned to the various ministries as well as the slackened tempo in the use of defence capital outlay-a euphemism for modernisation of our armed forces which is of the non-plan category. The budget had earmarked Rs 41,922 crore for defence capital outlay but, as of now, only Rs 7,978 crore or 19% had been spent. With only another four months to go before this fiscal year runs out, it is clear that, this critical sector will report a gross under-use of the allocations.

In regard to Plan spending of Union ministries, the ratio of utilisation-even assuming a percentage of 40 for the first eight months as good enough - is very poor in several of them. It is 4% in civil aviation, 6% in consumer affairs, food and public distribution, 12% in heavy industry and public enterprises, 20% in Panchayati Raj and 21% in power, 22% in higher education and 23% in atomic energy, to mention a few. Even if the tempo picks up in the coming months, it is doubtful whether the actual plan spending will correspond to the framework formulated in the budget.