Govt makes highest-ever expenditure cut of Rs 1.4 trillion for FY19

The government has resorted to an unprecedented expenditure cut of Rs 1.45 trillion for the financial year 2018-19 (FY19) to meet its fiscal deficit target of 3.4 per cent of the gross domestic product, official data shows.

It should be noted that expenditure cut here denotes the difference between provisional spending figures at the end of March and the Revised Estimates (RE) for FY19, and not the difference between Budget and Revised Estimates.

The compression, comprising cuts and rollovers, represented almost double of what was done in the previous year, and around 6 per cent of the amount pegged in the RE.

The finance ministry had to cut expenditure as the tax revenues saw a shortfall of over Rs 1.67 trillion, according to the data released by the Controller General of Accounts (CGA) on Friday.

It was primarily this segment of receipts that fell short of projections, as both non-tax revenues and non-debt capital receipts, including disinvestments, surpassed the targeted figures.

Personal income tax and the central portion of the goods and service tax, particularly fell short of the projections made in the RE. The former missed the target by Rs 1.58 trillion or by 25 per cent, while the latter fell short of Rs 46,365 crore or 9.2 per cent. 

As the government undertook a major compression in expenditure, it was the revenue side (which goes for meeting expenditure that does not generate assets) that bore the brunt.

There was a compression of Rs 1.33 trillion in revenue expenditure. This means over 90 per cent of the overall compression came from the revenue side. As certain expenditures such as salary and pensions can't be postponed, the subsidies, mainly on food, were rolled over.

While data on subsidy carryovers wasn’t officially available on the CGA website, the finance ministry officials said the cumulative rollovers on fertiliser subsidies now stands at Rs 35,000-40,000 crore, while petroleum subsidy rollovers stand at around Rs 20,000 crore.

"Whenever, it comes to meeting the fiscal deficit, and receipts don't come up to the level of projections, subsidies are rolled over," Madan Sabnavis, chief economist at CARE Ratings said. These rollovers would now figure in April and May of the government accounts, but for 2018-19 the government had met its fiscal deficit target.

Sabnavis explained that the government's accounts are on cash-basis, which means that what is spent or earned till the end of a financial year is only accounted for. 

Capital expenditure (capex) was cut by around Rs 13,000 crore, which is less than 10 per cent of the total compression. Of total capital expenditure of Rs 3.02 trillion in FY19, Rs 91,137 crore was spent in the first quarter, which was over three times of Rs 27,108 crore spent in the same quarter last year.

Even then, the gross fixed capital formation, which is primarily driven by the government capex these days, grew by just 3.4 per cent in fourth quarter of FY19, against double-digit growth in the previous three quarters. This meant that investments by the private sector would continue to remain subdued, a challenge that the new government faces to perk up the economy.