Fiscal Deficit Numbers under Focus of New Finance Minister
Arun Jaitley’s first day as the new finance minister was marked by some tough questions that he posed to officials on key economic issues, particularly fiscal deficit numbers. “He wanted to know if there was any window dressing (of fiscal deficit numbers),” said an official present at the presentation made to the minister on Tuesday. The usual practice is to defer subsidies of the fourth quarter of any financial year to the next fiscal, added the official, who did not wish to be named.
Fiscal deficit in 2013-14 was pegged at 4.6% of GDP in the revised estimates presented in the interim budget and was better than the budgeted 4.8% of GDP. The final numbers are expected by the end of this month. Former finance minister P Chidambaram was credited with having averted a sovereign rating downgrade by putting in place a stringent fiscal consolidation plan when he took over in August 2012. Consolidation was based on sharp compression in plan expenditure. A similar expenditure in 201314 is expected to have brought down the fiscal deficit to 4.6% of GDP compared with the budgeted 4.8% of GDP. The improvement in government finances was lauded by the ratings agencies, but many experts questioned the numbers, arguing that the government had deferred spending to the next financial year and brought forward some revenues that rightly belonged to the next fiscal.
“It is hardly a secret that this (fiscal consolidation) has largely been achieved by pushing back expenditure and moving forward tax and dividend collections,” HSBC chief economist for India and Asean Leif Lybecker Eskesen had said in a note after the interim budget.
The query from the new finance minister was in this backdrop.
Officials used data from several preceding years to point out that the subsidy expenditure for the fourth quarter had been deferred to the next fiscal till final estimates become available.
In their presentation to the finance minister, the officials flagged the key issues that required his attention including inflation management, fiscal consolidation and boosting growth.
The officials in the department of economic affairs, responsible for managing the economy, emphasised subsidy reforms including marketlinked pricing for diesel.
They suggested stepping up capital spending by the public sector as one of the shortterm measures.
The presentation made to the minister also emphasised the need to boost infrastructure and manufacturing.
FDI IN DEFENCE ON AGENDA?
Jaitley, who also holds the defence portfolio, directed finance ministry officials to look at foreign direct investment framework for defence production, indicating that he may be keen on opening up the sector.
The current policy allows up to 26% FDI in the sector and the UPA government, after much deliberation, only agreed to higher amount on a case-bycase basis. “This is an issue, which, in both limbs, would be dealt by both my departments. It has already come up in my preliminary discussions today and therefore, I do not want to say anything more before I look deeply into the matter,” Jaitley told the media after taking charge as defence minister. Jaitley said 26% FDI in defence was “introduced during the Vajpayee government... These are areas which I am personally willing to examine”.