Government to allocate less for capital expenditure in 2018-19

Despite an increase in gross tax revenue to GDP ratio due to a widening tax base, the government’s allocation for capital expenditure is set to marginally slow in 2018-19 as it has to significantly raise allocation for food subsidy as well as pensions and salaries due to the recommendations of the 7th Pay Commission.

The finance ministry in its Medium Term Expenditure Framework statement laid before Parliament under the Fiscal Responsibility and Budget Management Act, 2003 said any shocks to tax collections due to the introduction of GST will be absorbed in the current financial year and hence the tax-GDP ratio will remain at the level of 2016-17 at 11.3%. “However, going forward in the years 2018-19 and 2019-20, the gains from expansion of the tax base due to the introduction of GST and the increased surveillance post demonetisation will ensure tax-GDP ratio will increase by 30 basis points in each of the above FYs in question,” the finance ministry said in the statement.

The tax-GDP ratios are projected to be 11.6% in 2018-19 and 11.9% in 2019-20 respectively. Government has assumed nominal GDP growth of 12.3% in both 2017-18 (BE*) Health Education Agriculture

Rural development

Transport Defence 2018-19 (Projection) the years against 11.75% assumed for 2017-18.

However, in 2018-19, the finance ministry has projected that its capital expenditure will expand at 10.1% in 2018-19 from 10.7% in 2017-18 before it picks up to touch 14.4% in 2019-20. However, revenue expenditure is set to rise by 8.8% in 2018-19 against 5.9% in 2017-18 and 10.3% in 2019-20. 2019-20 (Projection)

NR Bhanumurthy, professor at the National Institute of Public Finance and Policy said the government may be trying to stick to the fiscal deficit target as per the FRBM Act while neglecting to contain revenue expenditure. “Also, the higher GDP growth assumption for the next two years seems to be inconsistent with the macro-economic situation,” he added.