Even as the Centre is looking for options to prop up demand in the economy, partly by stepping up productive spending, its capital expenditure has slowed down in the April-August period, compared to the scorching pace in the first quarter. Budgetary capex stood at 1.13 lakh crore or 36.56% of the full-year target of Rs 3.09 lakh crore in the first five months of 2017-18; in the corresponding period last year, it stood at 36.97% of that year’s target. With early passage of the Budget and front-loading of spending, capex in April-June this year was 22.1% of the Budget target while it was 19.9% of the corresponding target in the year-ago period. Since then, spending has inevitably slowed, given the budgeted fiscal deficit target of 3.2% of the gross domestic product (GDP) for 2017-18.
In April-August this year, the fiscal deficit stood at Rs 5.24 lakh crore, or 95.97% of the full-year target; in the year-ago period, the deficit had barely touched 74% of the annual target. India’s economic growth plunged to a 13-quarter low of 5.7% in April-June as the demonetisation-hit manufacturing sector received another blow from pre-goods and services tax (GST) de-stocking by jittery businesses. The scope for a fiscal stimulus by the Centre is limited. Non-tax revenues not keeping pace with budgetary expectations with shortfalls likely in spectrum proceeds and the Rs 27,000-crore reduction in the Reserve Bank of India’s (RBI) dividend. Though farm loan waivers could potentially boost rural consumption, these will have an immediate negative impact on states’ capex, as many of their fiscal position is constrained. A stimulus will, thus, have to come by reallocating resources — a shift from revenue to capital spending — as well as PSU capex, which did well last year too.
Stepped up revenue expenditure pushed overall spending so far this fiscal. Front-loading of subsidies, especially in food and fuel, have boosted revenue expenditure to Rs 8.4 lakh crore, or 45.72% of the 2017-18 target, compared with 41% of the relevant target in the year-ago period.
In April-August this year, the Centre’s net tax revenue of (after devolution to states) was Rs 3.44 lakh crore, or 28% this year year’s target, helped by buoyancy in GST and personal income tax receipts.
The ratio was 26.6% of the relevant target a year ago. However, overall April-August revenues (including tax, non-tax and non-debt capital receipts) were at Rs 4.28 lakh crore, or 26.7% of the 2017-18 target. Revenues were 27.3% of the target in the corresponding period of 2016-17. If the Centre determines to keep the brisk pace of spending achieved in the initial months of the fiscal year, it might look for avenues other than that budgeted to boost receipts as it sees shortfalls. Even though initial signs are that GST receipts will be robust and direct taxes too have got some post-demonetisation fillip, only 11 months’ GST receipts could be accounted for in the current year.