Govt-spend till July equals year's quota

Even reasonable tax collection's no cushion

The trend in Union finances, as of July 2007, does not make a happy reading.

Tax collections have remained generally buoyant over the comparable period last year, though, perhaps, not so vis-à-vis the budgetary projections. Overall, total receipts were only 18.6% of the budgeted amount for 2007-08 - this figure was slightly higher at 19.2% during the preceding fiscal - but total spending constituted 33.5% of the budget estimate.

With this glaring mismatch between revenue and expenditure, the Union government has achieved the dubious distinction of already surpassing the revenue deficit of Rs 71,748 crore envisaged for the current fiscal.

By July 2007, this deficit had scaled a high of Rs 82,400 crore, or 115.3% of the year's total. At the end of the same month last year, this proportion was lower at 92.3%.

The fiscal deficit, which reflects the gap between total expenditure and revenue receipts plus non-debt creating capital receipts and, therefore, the totality of government borrowings - has risen to Rs 1,29,408 crore by July 2007 while the budget has anticipated Rs 1,50,948 crore for the year as a whole.

Thus, as of this date, fiscal deficit has risen to 85.7% already. However, this spurt is, to a large extent, attributable to the stake acquisition in State Bank of India by the government in late July, which had cost the exchequer a hefty sum of Rs 35,331 crore. 

Since the Reserve Bank of India (RBI) has repaid this by transferring its surplus in August 2007, the substantial fiscal deficit as of July has now been largely neutralised.

Even so, considering the worsened current account balance, it is reasonable to conclude that fiscal deficit, too, has deteriorated thus far and, as a proportion to the budgeted sum, may be higher than the previous year's 58.1%, though not as high as 85.7% that is indicated in the Union finances at the end of July 2007.

As compared to 2006-07, tax revenues have generally been buoyant so far. Receipts from corporation tax were up by 49% till July 2007 vis-à-vis a year-ago period and those from income tax and customs rose by 32% and 20%, respectively.

The only laggard was Union excise duties, whose mop-up was a mere 6% higher. This is somewhat intriguing, given the double-digit growth in manufacturing sector this fiscal.

A redeeming feature has been a spurt in plan spending in the first four months of the current fiscal.  At 29.2% of the budgeted projection, it is higher than the previous year's 26.6% at the end of the same period.

But the flip side is that there has been a steep rise in non-plan expenditure - it worked out to 35.4%, while a year ago, the proportion was 30.7%.

The capital expenditure involved in buying the RBI stake in SBI was huge, and as mentioned earlier, this has distorted the fiscal picture as of end-July 2007.
The question is how was this fiscal deficit bridged or, to put it differently, what were the source of borrowings.

In the main, domestic avenues met the lion's share of the fiscal deficit - to the tune of Rs 1,28,372 crore, which amounted to 91% of the projection under this head during 2007-08.

Within this, market borrowings were of the order of Rs 74,744 crore during the first four months or 67% of the budget estimate of Rs 1,11,327 crore. Other sources were depletion of cash balance to the extent of Rs 32,063 crore, ways and means advances (Rs 23,938 crore) and disinvestments of surplus cash (Rs 20,000 crore).