Centre’s budget grew only a third in 5 years

By: | Updated: February 20, 2016 2:34 AM

Union Budget: Between 2007-11, expenditure had doubled

The Modi government has tried this year to break from a trend of drastically curtailing expenditure to meet the fiscal goals, while also giving a leg-up to capital spending. (Reuters)The Narendra Modi government has tried this year to break from a trend of drastically curtailing expenditure to meet the fiscal goals, while also giving a leg-up to capital spending. (Reuters)

Long years of relatively low economic growth has seriously constrained the government’s ability to pump-prime the economy, creating sort of a vicious cycle.

The Modi government has tried this year to break from a trend of drastically curtailing expenditure to meet the fiscal goals, while also giving a leg-up to capital spending. Despite this, the size of the central government budget will have grown just by third in the five years to the end of the current fiscal while it had more than doubled in the previous five years. This is even as it is assumed that, as promised by the government, the budgeted expenditure levels for the current fiscal is more or less maintained.

The budget’s size declined sharply relative to the nominal gross domestic product (GDP) as well — compared with an average of 15% between FY07 and FY11, the ratio is seen to be 13.7% in the subsequent five years.

The Centre’s total expenditure is estimated at Rs 17.8 lakh crore in the current fiscal, up 8% over the previous year; of this, Rs 15.4 lakh crore is revenue spending and the balance capex.

As for the government’s capital spending (Plan plus non-Plan) — which anyway is dismal, being way below 2% of GDP or around 11% of total expenditure — the growth will likely be just around 50% between FY12-FY16 compared with close to 130% in the previous five years. Real GDP growth declined from an average of 8.6% during FY07-FY11 to a likely 6.7% in the subsequent five years.

After the fiscal-stimulus years of FY09 and FY10 (when the fisc also took the burden of the 6th Pay Commission’s generous award), total expenditure has steadily declined as a share of GDP — from about 15.8% in FY10 to about 13.2% in FY15 (the same level is budgeted for the current fiscal). Capital expenditure plunged to 1.5% of the GDP in FY15, the lowest level in more than a decade at least.

The compression of overall expenditure growth coupled with some efforts to cut subsidies also led to a decline in revenue spending growth: While revenue spending grew over 100% from Rs 5.15 lakh crore in FY07 to Rs 10.4 lakh crore in FY11, the growth was contained at 34% in the subsequent five years to a budgeted Rs 15.4 lakh crore in this fiscal.

Gr8

The Modi government is believed to have more or less stuck to the budgeted expenditure levels this fiscal, thanks to more realistic projections — for the first time in the last five years, the targeted (gross) tax revenue target for the current fiscal (Rs 14.5 lakh crore) is being met — and the reining in of the oil subsidy.

Total expenditure was 74% of the Budget estimate in the first nine months of this year, indicating the budgeted pace of spending has been kept.

However, the government has its task cut out for FY17 when it comes to meeting the fiscal targets. An additional Rs 1.1 lakh crore needed to be provided to meet the 7th Pay Commission obligations and the promised higher pensions for armed forces. This could even reverse the trend, albeit temporarily, of the slowing growth in revenue spending.

While the need to augment public capital spending further is stressed by many economists given the stagnation in private investments, the subdued nominal GDP growth (around 8.5% for both this year and the next) is threatening to dent revenue buoyancy.

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