Fis­cal Deficit Nar­rows to 4.5% of GDP on Drop in Plan Ex­pen­di­ture

ECO­NOMIC BREATHER Plan ex­pen­di­ture, which is as­so­ci­ated with pro­duc­tive ex­pen­di­ture, fell to 4.5 lakh crore

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Asharp fall in plan ex­pen­di­ture has helped pull In­dia’s fis­cal deficit for last fi­nan­cial year be­low the govern­ment’s es­ti­mate, but the cut in spend­ing on pro­duc­tive ac­tiv­i­ties has left an im­pact on the econ­omy. The deficit, or the short­fall in the govern­ment’s rev­enue to meet ex­penses, nar­rowed to 4.5% of gross do­mes­tic prod­uct in the year ended on March 31, com­pared with 4.9% ini­tially es­ti­mated in the 2013-14 budget and the re­vised 4.6% given out with the in­terim budget for 2014-15 in Fe­bru­ary. Plan ex­pen­di­ture, which is as­so­ci­ated with pro­duc­tive ex­pen­di­ture, fell to .` 4.5 lakh crore, ac­cord­ing to pro­vi­sional data re­leased on Fri­day, from .` 4.8 lakh crore en­vis­aged in the es­ti­mates pre­sented with the in­terim budget. This im­plies a re­duc­tion of more than .` 1 lakh crore in plan spend­ing bud­geted for 2013-14. The na­tion’s eco­nomic growth re­mained be­low 5% for the sec­ond straight year, as GDP ex­panded just 4.7% in 2013-14, bet­ter than the pre­vi­ous year’s 4.5% growth, but be­low the most re­cent govern­ment es­ti­mate of 4.9%, data showed on Fri­day. Slug­gish man­u­fac­tur­ing sec­tor growth dented tax mo­bil­i­sa­tion with tax re­ceipts com­ing in lower at .` 8.2 lakh crore com­pared with the down­wardly re­vised es­ti­mate of .` 8.4 lakh crore. Non-tax rev­enue, largely in the form of div­i­dends from pub­lic sec­tor units, pro­vided some help – at .` 1.99 lakh crore, it ex­ceeded the Fe­bru­ary budget es­ti­mate of .` 1.9 lakh crore. Pri­vate an­a­lysts have called for a more sus­tain­able plan to cut the budget gap, even as they cited cur­tail­ment of plan ex­pen­di­ture as the main fac­tor that helped keep the deficit down in spite of the lower-than-tar­geted tax rev­enues.

“Sus­tain­abil­ity of the in­tended con­sol­i­da­tion is more im­por­tant, which would gain cred­i­bil­ity through the enun­ci­a­tion of the un­der­ly­ing pol­icy ori­en­ta­tion in terms of rev­enue aug­men­ta­tion mea­sures through tax re­forms and dis­in­vest­ment plans and im­prove­ment in the qual­ity of ex­pen­di­ture with a phased re­duc­tion in sub­si­dies,” said Aditi Nayar, se­nior econ­o­mist at ICRA.

For­mer Fi­nance Min­is­ter P Chi­dambaram had pegged fis­cal deficit for 2014-15 at 4.1% of GDP in the in­terim budget, in line with the fis­cal con­sol­i­da­tion plan un­veiled in 2012-13 af­ter he took charge of the fi­nance min­istry.

The Con­fed­er­a­tion of In­dian In­dus­try (CII) said a road map for ad­her­ing to the fis­cal deficit tar­get should be drawn up and an­nounced in the Budget, ex­pected to be pre­sented in July.

“Fis­cal con­sol­i­da­tion is an im­por­tant con­stituent of the re­form agenda and im­per­a­tive to main­tain In­dia’s im­age as a sta­ble in­vest­ment des­ti­na­tion,” CII Di­rec­tor-Gen­eral Chan­dra­jit Ban­er­jee said. “Hence, it would be im­por­tant for the govern­ment to spell out a strat­egy for the re­vival of growth while main­tain­ing fis­cal pru­dence.”

GDP ex­panded

Re­cent govern­ment

Lower tax

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