In Budget FY14 presented last February, finance minister P Chidambaram proposed a 16% increase in the Centre’s budget size to R16.65 lakh crore and a fiscal deficit of 4.8% of GDP. Though the planned expansion was on the previous year’s flattish growth, it was pretty obvious to many even then that his revenue proceeds could fall short of target, thwarting that plan. Sharp revisions in the budget estimates are not new; yet this time around the arithmetic has unravelled even as the first-half figures are available. With not much scope to boost revenue in a sluggish economy, huge cuts on development spending and deferment of big payment obligations wherever there is room to do so are likely in deference to the deficit target, official sources confirm.
The finance ministry, which is close to finalising the revised budget estimates (REs), is looking at savings of R1.3-1.4 lakh crore (up to 25%) on Plan expenditure and R25,000-27,000 crore (22%) on non-Plan capital expenditure, according to official sources. It may also allow the REs on major subsidies to be much closer to the budget estimates (BEs) than normal, requiring rolling over of subsidy bills of R1.1-1.2 lakh crore, these sources added.
The tax collection scenario has been dismal (gross tax collection grew 7.8% annually in the first half of the fiscal as against the budget target of 19%). Some slippage on the non-tax revenue front can’t be ruled out either, with the PSU disinvestment programme running behind schedule. Government managers are privately reconciled to a pick-up in the economy being pushed back to the next fiscal, early enough in which a new government will be sworn in.
If Plan expenditure saw an unprecedented near-20% cut (R1.07 lakh crore savings on the BE of R5.2 lakh crore) in FY13, a similar, if not sharper, pruning is on the cards this year. This would result in an odd situation — flat growth (in absolute terms) in Plan spending for three years in a row. Obviously, in real terms, there is going to be a decline in Plan expenditure in the three years to end-FY14.