Expenditure cuts to compensate for stimulus to industry

To help government contain its fiscal deficit at 4.8% of GDP in FY14

The finance ministry is expecting savings of about Rs 50,000 crore in expenditure this financial year, which might help it meet its fiscal deficit target of 4.8 per cent of Gross Domestic Product (GDP), despite some shortfall in revenue collections, higher subsidies and additional capital infusion in banks.

While about Rs 30,000 crore might remain unspent at the end of this year, against Rs 15,000 crore in 2012-13 (difference between revised estimates and actual expenditure), Rs 15,000-20,000 crore might come by cutting Plan expenditure of ministries which fail to show utilisation certificates for past funds.

Meetings to finalise the revised estimates (RE) would start from the third week of this month and Finance Minister P Chidambaram has said no new schemes or extension of existing ones would be entertained as fiscal deficit cannot be more than 4.8 per cent under any circumstances.

"Every year, we have some savings. This year too, Rs 30,000 crore of savings will come even if we don't do anything. And, if we strictly follow the rules for release of funds, a reduction of Rs 15,000-20,000 crore will come in the RE," said a finance ministry official who did not wish to be identified.

Last year, the government had cut expenditure by Rs 1 lakh crore, which constituted almost one per cent of the GDP size.

As lower-than-budgeted expenditure would hurt growth, the ministry is evaluating proposals for giving impetus to certain sectors by way of tax incentives, but the worry is that it would further affect tax collections. The automobile industry has asked the government to provide a more moderate tax structure, to help deal with the slowdown in sales. But instead of giving tax sops, the finance ministry has agreed to give additional capital to banks for lending to the auto and consumer durables sector. A provision of Rs 14,000 crore was made in the Budget and indications are that it could be increased to Rs 18,000 crore.

"As elections are due next year, the interim Budget in February would not have any fresh tax proposals or policy announcements. For some sectors, a few exemptions in indirect taxes (excise, service tax, customs duty) might be considered before the Budget as long as they do not require any changes in the law and don't affect the fiscal deficit much," said another official.

Officials, however, said the changes would not be significant and a mini-Budget like the one given by then finance minister Jaswant Singh before elections in 2004 was not possible this time. The reason being the economy is not booming as was the case at the time of the last year of National Democratic Alliance rule. As such, fiscal space was available with the government at that time. Singh had given duty sops of about Rs 10,000 crore in January 2004. GDP grew at 8.1 per cent and fiscal deficit stood at 4.3 per cent in 2003-04.This year, the economy is expected to grow by five per cent and fiscal deficit has already touched 74.6 per cent of the Budget Estimate (BE) in the first five months of 2013-14, against 65.7 per cent last year. Total expenditure till August this year is 39.8 per cent of the BE, compared with 37.9 per cent in 2012-13. Plan expenditure stood at Rs 1.83 lakh crore, accounting for 33 per cent of BE at Rs 5.55 lakh crore. At this point, it constituted 28.4 per cent of the BE last year.

Then how will the government cut Plan outlay? To a query over this, a finance ministry official said only nine departments of a total 50 spent more than last year's till August. So, there is a possibility of a cut in Plan expenditure, though it would not be possible to squeeze it like the last time. The finance ministry had cut Plan expenditure by 17.62 per cent at Rs 4.29 lakh crore in the RE against Rs 5.21 lakh crore in the BE for 2012-13. In fact, actual Plan expenditure was less by 3.3 per cent of RE at Rs 4.14 lakh crore.

Non-Plan expenditure constituted 43.2 per cent of the BE at Rs 11.09 lakh crore in the first five months of 2013-14, more or less the same as 43 per cent in April-August of 2012-13. Receipts, on the other hand, stood at Rs 2.58 lakh crore, constituting 23 per cent of Rs 11.22 lakh crore estimated in the Budget. In 2012-13, receipts had stood at 23.3 per cent of BE at this point of time.

Officials said tax revenue targets looked challenging but the collections would be close to the BE. Tax revenue (net to the Centre) stood at Rs 1.83 lakh crore, constituting 20.8 per cent of BE at Rs 8.84 lakh crore. In the first five months of 2012-13, tax collections had stood at 22.7 per cent of BE. Even then, tax collections had fallen short by almost Rs 30,000 crore compared to Rs 7.71 lakh crore of BE in 2012-13.

As far as non-tax revenue is concerned, the government is pegging its hopes on telecom spectrum auction. The government has collected Rs 68,786 crore from non-tax revenues, accounting for 40 per cent of BE at Rs 1.72 lakh crore. Nothing has so far come from spectrum so far which is to yield the exchequer about Rs 41,000 crore. Non-debt capital receipts could yield just 8.7 per cent of the target in the first five months of 2013-14 by yielding Rs 5,813 crore while the BE was pegged at Rs 66,468 crore.

Within this category, disinvestment made the exchequer fatter by just Rs 1,434 crore. The BE had targeted to raise Rs 40,000 crore from normal route of disinvestment and Rs 14,000 crore from residual stake sale in entities like Balco and Hindustan Zinc.