Narendra Modi government to break 4-yr trend, spending set to exceed budget estimates in FY17

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New Delhi | Updated: December 15, 2016 6:57:29 AM

First in four years; not to alter deficit number

The government is committed to the deficit target this year. (PTI)The government is committed to the deficit target this year. (PTI)

Breaking a four-year trend, the Centre’s expenditure will exceed the budget estimate in FY17. Buoyant tax revenue will enable the government to step up spending to somewhat counter the post-demonetisation economic torpor — by R38,000 crore or close to 2% of the estimated budget’s size of R19.78 lakh crore for the current financial year. Unlike between FY09 and FY13, when a stimulus administered to the economy required more than doubling of the fiscal deficit in relation to the gross domestic product (GDP), this time around the additional spending will not change the deficit number.

The fiscal deficit for FY17 is projected to be 3.5% of GDP as against 3.9% in FY16. Between FY13 and FY15, the fiscal deficits were reined in at budgeted levels by slashing expenditure.

The additional spending would be panned out across rural and urban development projects to create more jobs as well as capital assets to minimise the pain to the economy as private sector squeezes spending due to lack of liquidity after demonetisation. The extra expenditure, according to sources, would broadly be as follows: R8,000 crore for rural employment scheme (MGNREGS), R8,000 crore in grants and aids to states for development of various projects/schemes, R7,900 crore for urban infrastructure, R3,500 crore for farm sector programmes and R3,000 crore for rural telecom connectivity. The additional funds would inflate Plan spending by around R45,000 crore; however, non-Plan spending, relatively less productive in nature, could be downsized a bit. For instance, some savings are likely from the defence budget of R2.55 lakh crore.

After the global economic recession in 2008-09 hit India’s economic activity, the Centre unveiled a fiscal stimulus package that included both tax cuts and spending increases, mostly aimed at boosting consumption. Implementation of the package resulted in fiscal deficit rising steeply from 2.54% in FY08 to about 6% between FY09 and FY12.

However, the government is committed to the deficit target this year. “The extra spending would be met through additional tax and non-tax revenues,” a senior official told FE.

Official sources said the extra spending would be largely funded from additional tax receipts, which grew nearly 24% till October-end, compared with 12% growth required to achieve Rs 10.54 lakh crore tax revenue target (after transfer to states) in FY17. Advance tax receipts from corporates could slow down a bit in the second half of the year; still, the government expects net tax revenue to be higher by around Rs 50,000 crore over the budgeted level this year. This is without factoring in taxes from the new income disclosure scheme and indirect tax receipts expected thanks to demonetisation. While tax revenue will be more than budgeted, the other receipts overall will more or less stick to the targeted level.

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