FY14 Budget likely to see expenditure freeze

Written by Himani Kaushik | New Delhi | Updated: Feb 25 2013, 18:04pm hrs
In what would be a strong signal to markets and investors, the government is set to revise downwards the budgetary expenditure for 2012-13 by 9% to Rs 13.6 lakh crore from the initially estimated R14.9 lakh crore and peg the size of Budget 2013-14 at roughly the same level as the revised figure for this fiscal.

Such freezing of the Budget size a cut in real terms is unprecedented in recent history at least and is contingent on expected substantial savings attributable to subsidy reforms initiated and other expenditure compression measures. Revenue buoyancy is likely to be limited in 2013-14 as well, thanks to the slowdown in economic growth.

Total expenditure during April-December grew 10.6% against the budgeted 13.1%. Thanks to some steps taken to reduce the fuel subsidies and big spending cuts in rural development, defence, HRD, railways and others, the government hopes to save R1,30,000 crore for the full year. This means the revised estimate (RE) for this fiscal will be just 3% higher than the RE of last fiscal.

While the finance ministry plan is in sync with its fiscal consolidation agenda and will send a strong signal to global credit rating agencies who had warned of a sovereign downgrade, some economists say such spending squeeze by the government might slow the economy further.

Abheek Barua, senior economist with HDFC Bank: We have seen in the last few months a major slump in government spending on account of lower utilisation of funds, but given the growth scenario and private investment remaining flat, the government needs to actually push productive investments and revive demand.

Senior officials from several ministries have confirmed that this years expenditure controls will ripple next fiscal too, with an impact on Plan and non-Plan heads. Up to December, total revenue this fiscal grew just 13.8% over the same period a year ago, against the budgeted growth of 22.7%. With GDP growth projected at around 5%, this is near-optimal achievement. No dramatic improvement in revenue growth is expected next fiscal either given the dour growth forecasts.

The rural development ministry will see this fiscals biggest budget cut of R20,000 crore about 25% from the budgeted allocation. This will be followed by a little over R10,000 crore cut each for defence and railways. Ministries such as heavy industries and human resource development, road and transport are also expected to face sharp expenditure cuts.

On Plan expenditure, spending till December had been 56.8% of the BE or about R2.96 lakh crore. Non-Plan expenditure was 72% of BE at R6.95 lakh crore during the period.

A Prasanna of ICICI Securities said the slump in government spending is dampening public consumption adding this could impact third quarter growth.