Presenting the budget in the Lok Sabha Monday, finance minister P Chidambaram projected a massive 18 per cent rise in tax revenues for 2014-15, which is far above the projected growth-plus-inflation projections for the economy.
At the same time, he has kept expenditure projections limited to just 11 per cent by under-providing for subsidies and carrying out a massive re-organisation of investment or plan expenditure, a task which should have been left to after the general elections.
He has also kept no fiscal room for the 14th Finance Commission award, due in October.
As a result, he has budgeted for a 4.1 per cent target for fiscal deficit in FY15 despite easing up on fiscal consolidation by giving tax sops to the automobile and consumer durables sectors which will run through until June 30.
Asked later if the sops were aimed to woo voters, Chidambaram said: My intention was not to please anyone. I wanted to talk to the people directly that we are going through a turbulent phase in the economy.
The changes carried out by the minister in the plan budget means a number of social sector ministries at the centre including HRD, health and rural development could become marginal as most of their budgets have been transferred to the states.
The finance minister had cut plan expenditure by Rs 70,000 crore in FY14, which has allowed him to project a rise of 19 per cent in plan spend during FY15. However, if the projection is compared to the sum mentioned in the budget estimates of FY14, the number actually declines by Rs 987 crore.
A HSBC note said the finance minister had made his numbers work by pushing back expenditures and moving forward tax and dividend collections. It, therefore, implies that the targeted fiscal consolidation will be more difficult to come by next fiscal year.
In last years budget Chidambaram had cut back plan expenditure by Rs 1,10,000 crore and taking this years cuts into account the UPA-II government has whittled down investment expenditure by close to Rs 2 lakh crore in two years.
There seemed to be a sense of dj vu in the key tasks stated by the minister in his budget speech. There did not appear to be too much progress on key aspects stated in earlier years such as Infrastructure Debt Funds, regulatory authority for the road sector etc, said Vishwas Udgirkar, Senior Director, Deloitte India.
However, to his credit the minister did not splurge on pre-election sops, barring excise set-offs, an increase in agriculture credit target for banks by 14 per cent and putting a moratorium for all interest payments on student loans taken until the end of December 2013.
For FY14, the minister achieved a fiscal deficit of 4.6 per cent of GDP by cutting capital expenditure by a massive 17 per cent. This was necessary as subsidies have risen by over 11 per cent compared to budget estimates. Here too, the minister has assumed the subsidy bill will not change by even Rs 1,000 crore in the next fiscal despite the National Food Security Act, for which an additional Rs 23,000 crore has been earmarked.
All this is the result of hard work. I may add, among other mentors, my mother and Harvard taught me the value of hard work, Chidambaram said.
Other than cutting investments, Chidambaram has made his math work in spite of flat tax receipts through the cushion of non-tax revenues from telecom auctions and short term borrowings which have breached the budget estimate by almost Rs 3,000 crore this fiscal.
This will be almost Rs 12,000 crore more in FY15.
But despite these steps, to keep the fiscal deficit in FY15 look plausible, the finance minister has budgeted for a lower rise in the net debt of the government. The bond markets were not impressed that this could happen and the yields on government paper dipped, which means they expect the government to borrow more after the general elections.