Helped by measured release of explicit subsidies — especially those on urea and micro soil nutrients — and stronger-than-usual tax and non-tax revenues for the first quarter of the fiscal year, the Centre appeared walking the talk on the fiscal front in Q1FY19.
The fiscal deficit in Q1FY19 came in at Rs 42,9033 crore or 68.7% of the FY19 target, according to the Controller General of Accounts (CGA) data released on Tuesday. Though this appeared to be inconsistent with the fiscal consolidation plan, the situation was much better than during the year-ago quarter when the deficit touched 81% of the annual target for the year.
During the initial months of a fiscal, the revenue streams have traditionally been thin, making the deficits look bloated. Going by this, the latest figures aren’t really worrisome (the Centre’s fiscal deficit for FY19 is budgeted at 3.3% of GDP against 3.5% in FY18).
In fact, the Modi government seems to have left strategic room for stepped-up spending during the second half of the year, in sync with its electoral aspirations.
Budgetary capital expenditure in the June 2018 quarter, however, stood at `86,988 crore, 27% higher than what it was in the year-ago quarter and 29% of the full-year target, indicating the continued heavy reliance on public investments for growth amid scarce evidence of a much-awaited recovery in private investments (output growth in capital goods, a proxy of investment demand, had slowed to 7.6% in May 2018 from 11.9% in the previous month).
Department of economic affairs secretary Subhash Chandra Garg tweeted: “Sound first quarter fiscal performance. Expenditure at 29% of Budget Estimate with capital expenditure also rising by `18,660 crore over last year. Tax Revenues at 17.39% of BE higher than last year. Also non-tax. Fiscal Deficit at Rs 4.3 lakh crore lower than Rs 4.4 lakh crore last year.”
In fact, last year set a new trend in the Centre’s spending pattern with unprecedented front-loading of expenditure enabled by early presentation of the Budget. The pace has been more or less been maintained in the current year too, though revenue spending saw a squeeze.
On July 4, Union minister Arun Jaitley asserted that the government was committed to the path of fiscal discipline laid in the latest Budget and won’t resort to any “panic reaction” to address externalities like “artificial scarcity of crude oil” or the protectionist offensive unleashed by the developed economies. He said though interim fiscal relief could be considered, forgoing fiscal prudence as remedy would be worse than the problem itself. There have been demands for excise duty cuts on petrol and diesel as the prices of the two decontrolled auto fuels rose in the retail market, reflecting the global product prices.
In April-June 2018, the Centre’s tax revenue (net of transfers to states) stood at Rs 2.37 lakh crore or 16% of the FY19 Budget estimate (BE), compared with 14.5% of the corresponding target in the year-ago period. Thanks to higher receipts from “general and economic services”, non-tax receipts were at 12.5% of the current year’s target in Q1 against 7.6% of the relevant target in the corresponding quarter last year. Non-debt capital revenue including disinvestment receipts in the first three months of FY19 was at 11.8% of the annual target, almost at the same level of the corresponding quarter last year.
Subsidy on urea in Q1FY19 was Rs 8,591 crore, half the level in the year-ago quarter, while that on nutrient-based fertilisers was about Rs 3,000 crore lower than a year ago. Petroleum (down Rs 4,325 crore) and food (down Rs 2,800 crore) subsidies were also curbed.
While the Centre’s fiscal deficit, according to an earlier Fiscal Responsibility and Budget Management (FRBM) roadmap, was to come down to 3% in FY19, the new target for the current year is 3.3% and the 3% norm will be met only in FY20.
Last year, the NK Singh-headed FRBM committee had recommended that the Centre should aim for a fiscal deficit of 3% of GDP for three straight years starting FY18 and gradually reduce it to 2.5% by FY23 and partner states in adhering to the fiscal discipline. It had suggested a ceiling for general government debt (both Centre and states) at 60% of GDP by FY23.