Yes the cat is now out of the bag. Ever since the introduction of last year�s budget, targeting a further fiscal consolidation for 2008-09, economists have been pointing out the gross underestimation of fiscal deficit in that budget. The Interim Budget has now revealed a huge rise in fiscal deficit of the central government to 6 per cent of GDP from 2.7 per cent in 2007-08. Has the fiscal deterioration been due to fiscal stimulus packages administered by the government to counter the impact of global crisis on the Indian economy? What about the continued high deficit targeted for 2009-10?
The table below summarizes the budgetary trends as presented in the Interim Budget 2009-10. The worsening of fiscal deficit in 2008-09 (revised estimates) from the budget estimates is due to an increase in expenditure of Rs. 150,069 crore (2.8 per cent of GDP) and decline in revenue receipts of Rs. 40,762 crore (0.75 percent of GDP). The fiscal burden arising from fiscal stimulus packages (including both revenue fall and expenditure increase) amounted to Rs. 40,700 crore constituting just 0.75 per cent of GDP. In short, of the deterioration of fiscal deficit of 3.5 per cent of GDP from the budget estimates, 2.8 per cent of GDP has nothing to do with fiscal stimulus packages
Table: Central Government Budget 2009-10 (Rs. Crore)
2007-08
(Actuals) 2008-09 (BE) 2008-09 (RE) 2009-10 (BE) %Change 4 over 2 %Change 5 over 4
1 2 3 4 5 6 7
1. Revenue Receipts (3+4) 541925 602935 562173 609551 3.7 8.4
2. Gross Tax Revenue 593147 687715 627949 671293 5.9 6.9
Corporation tax 192910 226361 222000 244200 15.1 10.0
Income tax 102644 120604 108000 118800 5.2 10.0
Customs 104119 118930 108000 110187 3.7 2.0
Excise duties 123611 137874 108359 110604 -12.3 2.1
Service tax 51300 64460 65000 68900 26.7 6.0
3. Net Tax Revenue (Net of States’ Share) 439547 507150 465970 497596 6.0 6.8
4. Non-Tax revenue 102378 95785 96203 111955 -6.0 16.4
5. Recoveries of Loans 5100 4497 9698 9725 90.2 0.3
6. Other Receipts* 3264 10165 2567 1120 -21.4 -56.4
7. Total Expenditure* 677201 750884 900953 953231 33.0 5.8
8. Revenue Expenditure 594494 658119 803446 848085 35.1 5.6
Of which: Interest payments 171030 190807 192694 225511 12.7 17.0
9. Capital Expenditure* 82707 92765 97507 105146 17.9 7.8
10. Revenue Deficit (8-1) 52569
(1.1) 55184
(1.0) 241273
(4.4) 238534 (4.0) 359.0 1.1
11. Fiscal Deficit [7- (1+5+6)] 126912
(2.7) 133287
(2.5) 326515
(6.0) 332835 (5.5) 157.3 1.9
*Excludes transactions related to RBI transfer of State Bank of India to central government in 2007-08 (Rs. 35531 crore) which is deficit neutral as equivalent amounts are shown on both receipts and expenditure sides.
Note: Figures in brackets are per cent to GDP.
The above does not take into account the off-budget items of oil and fertilizer bonds which are estimated at Rs. 95,942 crore, equivalent to 1.8 per cent of GDP. For the previous year 2007-08 this amounted to Rs. 19,453 crore or 0.4 per cent of GDP. Thus including these off-budget items, the centre�s fiscal deficit in 2008-09 would be 7.8 per cent of GDP compared to 3.1 per cent of GDP in 2007-08. Fiscal deficit of the states is expected to be over 3 per cent of GDP in 2008-09 against the budget estimates of 2.1 per cent of GDP taking into account the additional borrowing of Rs. 30,000 crore in the fiscal stimulus package and the likely shortfall in tax revenues. Thus the combined fiscal deficit could be about 11 per cent of GDP in 2008-09 against 5.4 per cent of GDP in 2007-08.
A major part of the rise in fiscal deficit in 2008-09 is due to a huge growth in revenue expenditure of about 35 per cent against the average annual growth of about 12 per cent in the previous five years. Furthermore, the deterioration in the growth of revenue receipts is quite marked from an average of about 18.6 per cent per annum in the past five years to just 3.7 per cent in 2008-09. In the case of net tax revenue, the deterioration is particularly steep from an average growth of 22.6 per cent per annum during 2003-08 to just 6 per cent. The tax-GDP ratio which had gone up to 12.6 per cent in 2007-08 from 9.2 per cent in 2003-04 is estimated to decline to 11.6 per cent in 2008-09. This is budgeted to go down further to 11.1 per cent in 2009-10. This clearly is an admission of the fact that the economy has deteriorated in the current year and will deteriorate further next year.
The budget has provided for a marginal decline of fiscal deficit to 5.5 per cent of GDP next year. This is predicated on a modest increase in expenditure of less than 6 per cent for the next year and a strong growth in GDP of about 7 per cent in real terms both of which are unrealistic. We are indeed heading towards really difficult times
