The fisc’s journey from bad to worse to not-so-bad

Actual figures, just released, show that in terms of the two key fiscal fitness indicators, revenue deficit and gross fiscal deficit, the budgetary position of the Central government during 2010 -11 was in a much better shape than what was anticipated in the revised estimates; in relation to the budget estimates, too, the performance was satisfactory.

The actual revenue deficit, at ¤244,853 crore, was lower by a whopping Rs24,991 crore than the revised estimate; as a ratio of the gross domestic product, the revenue deficit was down to 3.1% compared with the revised 3.4%.

The actual fiscal deficit — the measure of the expenditure-receipts gap, or the totality of the Centre’s borrowings — had also declined to Rs369,043 crore from the revised figure of Rs400,998 crore, while as a proportion of GDP, it dipped to 4.7% from 5.1%.

In what may be a rare feat in recent times, the last year saw the revenue deficit and the fiscal deficit drop well below the original budget estimates. The actual revenue deficit was Rs244,853 crore as against the budgeted Rs276,512 crore, showing a decline of over Rs31,000 crore; in relation to GDP, the revenue deficit was 3.1% compared with the original target of 4%. The fiscal deficit was lower by Rs12,365 crore at Rs369,043 crore; the fiscal deficit-GDP ratio had eased to 4.7% from the budget estimate of 5.5%.

The officialdom has been quick to claim credit for this “improvement” in the Union finances during 2010-11. But this happy outcome was the result of elastic revenues that more than offset the overspending that was evident during most part of the year, as well as due to some expenditure compression during the closing months.

First, a comparison of revised and actual estimates. The final tally of revenue receipts and total receipts had surpassed the revised projections by Rs10,444 crore and Rs14,298 crore, respectively. There was also an expenditure contraction to the tune of Rs17,657 crore and almost entirely in respect of plan expenditure, which was Rs17,674 crore. Since plan spending also involves considerable outgo under the revenue category, capital expenditure is a better gauge of the quality of spending cuts.

Here, compared with the incremental growth of Rs9,760 crore implicit in the revised estimate, the actual had in fact shown a decline of Rs3,110 crore.

Inevitably, this had led to a lower order of actual revenue and fiscal deficits than what was indicated in the revised data. Thus, while buoyant revenues gave the Centre the leeway to be more forthcoming in the matter of expenditure, what it did was to allow unproductive spending to go up when, in fact, it should have gone down, and to let plan spending go down when, in fact, it should have gone up.

Second, when we relate the actual budgetary receipts to the original projections for 2010-11, the steep decline in the magnitude of revenue and gross fiscal deficits may not be much to gloat about. The revenue front was buoyant, with an increase of Rs38,696 crore in tax receipts; the overall receipts were also higher by as much as Rs102,535 crore than what was budgeted, mainly due to the windfall gains from the spectrum auctions.

But, the government spending had surpassed the budgeted sum by a staggering Rs90,170 crore; of this, the increase was a mere Rs4,258 crore in plan expenditure, the lion’s share being accounted for by non-plan heads.

Here, too, the better showing on the fiscal front stemmed from warped priorities in the matter of spending — very sluggish when it came to plan heads and brisk in regard to current expenditure.
In a statistical sense, the budgetary picture had changed for the better during 2010-11, but the quality and manner of fiscal improvement was rather questionable.

It is therefore difficult to share the optimism of the finance minster that the “fiscal deficit trend of last year is also quite encouraging. It is little less than what I had projected in the revised estimate and this year also, I will be able to keep the fiscal deficit target.”

At least, the start has been rather bumpy. The data for the first month, April, indicates that the Centre has incurred a revenue deficit of Rs60,615 crore and a fiscal deficit of Rs74,661 crore; as a proportion of the budgeted amount, these have been higher than what they were a year ago.

Revenue deficit stood at 19.7% of the budget estimate compared with 18.3% in April 2010 and the fiscal deficit at 18.1% as against 14.2%.