Weak non-tax receipts pushed the Centre’s fiscal deficit for the first five months of FY17 to Rs 4.1 lakh crore, or 76.4% of the full-year target of Rs 5.34 lakh crore. In the same period last year, the deficit was 66.5% of the corresponding annual target. Though an improvement in receipts from disinvestment and PSU dividends are expected in the remaining part of the fiscal year, analysts said, unlike last year when the Centre’s capex exceeded the initial projections, a minor squeeze on such growth-inducing expenditure could be expected this year.
The Centre reiterated recently that the fiscal deficit estimate of 3.5% of GDP would be adhered to.
The Centre has assumed nominal GDP growth of 11% in FY17; since nominal growth returned to double digits in the June quarter and many expect this to be so for the remaining quarters too, no threat is likely to the fiscal deficit target from the base being lower than estimated.
However, the government’s tax revenue showed a healthy growth thanks to the spillover effect of a series of excise duty hikes effected on petrol and diesel in the last few months of FY16. The April-August net tax collection was Rs 2.8 lakh crore, which was 26.6% of the estimate for the full year; in the corresponding period a year ago, it stood at Rs 2.1 lakh crore or 22.8% of that year’s target. The April-August growth rate in net tax revenue was 33.5%, much higher than the budgeted 11.6% growth rate for the full year.
The strong performance in tax revenue was mainly due to central excise, which saw a 51% increase in gross receipts at about Rs 1.2 lakh crore during the period. However, corporate tax revenue receipts declined by 1.5% during the period, indicating that the economy is still not out of the woods.
Overall revenue receipts during the first five months of FY17 were Rs 3.94 lakh crore, or 27.3% of the full-year target; in the same period last year, revenue receipts were 29.7% of the target, according to data compiled by the Controller General of Accounts. Revenue receipts were lagging as the proceeds from the ongoing buyback of shares by five PSUs from the government haven’t been factored in. Though there has been a slowdown in dividends by PSUs so far, the situation would improve in the coming months given the mandate to all PSUs to give at least 30% annual dividends.
Despite a curb on non-Plan spending, the government’s capital spending, which is critical to the revival of economic activity, remained a bit lower than last year. Capital expenditure — including Plan and non-Plan categories — stood at Rs 91,332 crore, or 36.9% of the full-year target up to August this year, against Rs 91,938 crore (38.1%) in the corresponding period of FY16. But Plan expenditure remained robust, at Rs 2.37 lakh crore, or 43% of the full-year estimate, compared with Rs 1.86 lakh crore (40.1%) in the year-ago period. Top spenders in this category included roads and transport, urban development, health, human resource development, and housing.
The Centre managed to contain non-Plan expenditure, which stood at Rs 5.65 lakh crore in April-August this year, or 39.6% of the full-year target, compared with Rs 5.45 lakh crore, or 41.6% of the previous year’s target during the period. However, the huge payouts under Seventh Pay Commission (arrears released with the August salaries on August 30/September 1) is likely to push up revenue spending this quarter.
Unlike in FY15 when it had to trim spending by Rs 1.5 lakh crore to meet the fiscal deficit target, the government might undertake smaller Plan spending cut in the current fiscal to keep deficit at 3.5% of GDP in FY17. After many years, Plan expenditure was actually Rs 5,800 crore more than the budget estimate of Rs 4.65 lakh crore in FY16. Hefty cuts in Plan spending used to be regular feature in previous UPA regime to meet deficit target.