The CAG has estimated the Centre’s fiscal deficit in FY16 to be Rs 53,146 crore higher than estimated in the Budget, marking one of the widest divergence between the two estimates ever. According to India’s top auditor, fiscal deficit stood at 4.31% of the GDP in FY16 versus the provisional actuals of 3.9%, reported by the government. The Centre’s financials, as reported by the Controller General of Accounts and audited by the Comptroller and Auditor General of India, varied widely in the last decade and the gap peaked at Rs 97,452 crore in FY09 (post-UPA-I election year that saw Rs 66,000 crore mega farm loan waiver).
Going by the CAG estimate, the Centre missed the fiscal deficit target in FY16. Although difference has since narrowed and become negligible in FY14, it is again looking up (see chart). “Some of the possible reasons for this divergence is the lack of transparency in disclosure of receipts and expenditures. Another aspect of opaqueness is high degree of aggregation. This aspect has been brought forth by the 12th Finance Commission which has specified eight set of separate statements along with the budget,” SBI economists said in a report. The government’s practice of using cash flow based accounting makes the process difficult because its financial position at any given point and the changes that take place over time are not provided in the cash-based system, they said. “Government’s liabilities such as accrued liabilities on interest payments due as also dues on account of pensions and superannuation benefits are not reflected,” they added.
The variation at times is also caused by huge tax or non-tax receipts or refunds during a particular year as well changes in some policies after the budget is presented, said N R Bhanumurthy, professor at National Institute of Public Finance and Policy. However, CAG has endorsed the government’s revenue deficit figures for 2015-16; as far as this deficit is concerned, the CAG audits have never produced any surprises.
The CAG said: “The bulk of the fiscal deficit (in FY16) was towards financing the revenue deficit. Out of the fiscal deficit of Rs 5.85 lakh crore, Rs 3.43 lakh crore (58.65%) was on account of revenue account. Remaining share of fiscal deficit was on capital account. The share of revenue deficit (in fiscal deficit) decreased from 70.98% in 2014-15 to 58.65% in 2015-16. This was due to significant increase in the share of net capital expenditure which rose to 40.43% in 2015-16 against 26.04% in 2014-15.”
As per the road map laid out by the 14th Finance Commission, the Centre’s fiscal deficit was to reduce to 3% in FY17 and remain at that level for subsequent years, but the Centre had, in Budget FY16, said that the 3% target would be achieved in FY18. However, while the Centre is likely to achieve the FY17 deficit target of 3.5% riding on revenue buoyancy, the demonetisation pangs could derail the plan for next fiscal. The combined fiscal deficit of the Centre and states is now seen at around 7% of GDP.