Forget fiscal stimulus, has govt started compressing public expenditure?

NEWDELHI: While the talk of a stimulus package to revive a slowing economy has everyone busy, the government seems to have started compressing capital expenditure to stay on course for its fiscal deficit target.

The Union finance ministry had advanced the budget presentation by a month to February 1 this year, instead of the usual practice of presenting it on the last working day of February, in order to initiate revenue mobilisation and capital expenditure measures right from the beginning of the new fiscal year.

However, data released by the Controller General of Accounts (CGA) on Friday showed that even with the early passage of the Budget by Parliament, the government spent only 35.5% of ₹3.1 lakh crore capital expenditure earmarked for 2017-18 during the first five months of the year (April-August), against 37% during the same period a year ago.

The major departments where capex is less than last year’s level are telecom (3% in FY18 versus 34% in FY17), railways (21% versus 32%), space (34% versus 38%) and urban development (36% versus 71%). The ministry of road transport and highways also has not been able to raise its spending with capital expenditure at 49% of its budgeted amount during the first five months of the year, the same as last year.

The government also significantly reduced transfers to states on capital account from 87% of the budget amount last year to 52% during the April-August period this year.

Cutting down government’s capital expenditure at a time when private investment has been found lagging could further accentuate economic slowdown.

Aditi Nayar, principal economist at credit rating agency ICRA Ltd, in a note published on Friday said after surge in expenditure in the early months of FY2018, the pace of spending was arrested in August. “Revenue expenditure rose by a mild 2%, whereas capi- tal expenditure contracted by a sharp 28% in the month of August 2017. The slowdown in spending in August 2017 prevented a larger slippage in the fiscal deficit relative to the level at end-July 2017.”

The government overshot its revenue deficit target and exhausted 96.1% of its full-year fiscal deficit target in the first five months (April-August). During the year-ago period, the Centre had used up 76.4% of the total fiscal deficit target for 2016-17. As for the revenue deficit, last year the government reached 91.7% of its target in the first five months, whereas it is at 134% this year.

However, revenue expenditure is at a higher level this year—45.8% of the full-year target till August as against 41% during the same period last year.

The finance ministry on Thursday said it will raise ₹2.08 lakh crore through market borrowings in the second half of 2017-18, sticking to its budget target, but did not rule out the possibility of selling more government bonds for additional spending.

However, economic affairs secretary Subhash Chandra Garg said the government’s capex is on track and he does not foresee breaching the fiscal deficit target of 3.2% of GDP for 2017-18 as of now.

THE GOVERNMENT OVERSHOT ITS REVENUE DEFICIT TARGET AND EXHAUSTED 96.1% OF ITS FULLYEAR FISCAL DEFICIT TARGET IN THE FIRST FIVE MONTHS (APRILAUGUST)