How bad are the slippages on the fiscal front?

Figures for the first half of the fiscal year show that the mismatch between the income and expenditure of the government has pushed up the revenue deficit, or the gap between government revenue collections and the recurring expenditure of the government, to almost three-fourths of the budget estimates. While the budget estimates projected the annual revenue deficit to be R3,07,270 crore in 2011-12, the numbers for the April-September period show that the deficit has already touched R2,33,428 crore. Consequently, the government had to borrow much more and this has pushed up the fiscal deficit, which refers to the gap between total government expenditure and revenue and non-debt receipts, to R2,92,458 crore, which is 70.8% of the annual fiscal deficit of R4,12,817 projected for 2011-12. Such large slippages in the initial months are worrisome as they will push up the revenue and fiscal deficits much higher than the 3.4% and 4.6% projected in the budget estimates for the year.

The current slippages on the fiscal front are the worst in the last three years, including during the slowdown in 2009-10, and were exceeded only in 2008-09. In fact, the revenue deficit in the first six months of 2008-09 shot up to 141.9% of budget estimates and the fiscal deficit rose to 77% of budget estimates during the period. Consequently, the revenue deficit for the full year surged up to 4.4% of GDP, more than four times the budget estimate, while the fiscal deficit went up to 6% of GDP, which was more than twice the 2.5% estimated in the budget projections.

Why are deficits going up at a faster pace?

The larger-than-anticipated revenue deficit in the first six months of the year is not because the government has splurged on spending, but more because of the slower-than-anticipated growth of revenues. Numbers for the first six months of the year show that total government expenditure was R5,99,093 crore, which is only 47.6% of the total annual expenditure of R12,57,729 crore. In fact, the government spent an even larger 48.5% of the budget estimates in the first six months of the fiscal year 2010-11.

In sharp contrast, the total income receipts of the central government in April-September 2011 were R3,18,283 crore, which is only 37.7% of the annual estimates made in the annual budget, whereas it was able to collect as much as 55.6% of the annual budget estimates in the first six months of 2010-11.

The slow income inflows were mainly on account of poor tax collections. Numbers show that the central government could collect only R2,54,731 crore from net tax receipts in the first six months, which is just 38.3% of the targeted amount of R6,64,457 crore for the whole year. This is a major setback as compared to the previous year when the government was able to collect 43.7% of the projected tax revenue in the first six months.

Why have tax collections slowed?

The slowdown in growth has hit tax collections. And the scenario worsened as the large refunds on excess taxes, especially corporate taxes, collected in the previous year and the larger growth in the base year further pushed down growth rates. Numbers furnished by the controller general of accounts show that gross tax revenue grew by 13.9% in April-September, which is just about half the 25.2% growth in collections during the same period of the previous year.

The worst hit was the corporate tax collections where the net inflows, after accounting for the refunds, went down to 3.4%, which is just about a fraction of the 17.9% growth in collections in April-September 2010-11. However, net revenue from income taxes grew by a healthy 17.3%, higher than the 13.6% growth registered in the first six months of the previous year.

In the case of indirect taxes, too, the trends were mixed. While the growth of customs and excise duties slowed sharply, those of services taxes more than doubled. Trends for the April-September period show that, while growth of customs duties slowed from 61.8% in 2010-11 to 22.5% in 2011-12, those of excise collections went down from 41.1% to 13.9%, while those of service taxes shot up from 15.9% to 37.5%.

How did the government check growth of spending?

Though the overall growth of central government spending has been restrained, there are wide disparities across ministries. For instance, the ministry of consumer affairs has already spent 82% of its non-plan budget allocations for the whole year, which means that the food subsidy bill will shoot up substantially higher than the budget projections. Similarly, the non-plan expenditure of the ministry of petroleum and natural gas has already gone up to 483% of its budget allocations for the whole year on account of the growing subsidy in the oil account. However, the overall spending of the government has been balanced by lower spending by other ministries. For instance, the ministry of power, which has been able to so far spend only a meagre 15% of its budget allocation for the annual plan.