Pace of revenue expenditure slows as fiscal deficit target looms

Finance Minister Arun Jaitley has said the fiscal deficit target of 3.3 per cent of gross domestic product (GDP) will be met without any cut in capital expenditure

Pace of revenue expenditure slows as fiscal deficit target looms
Arup Roychoudhury New Delhi
4 min read Last Updated : Jul 02 2019 | 12:00 PM IST
As the Centre strives to meet a very challenging 2018-19 fiscal deficit target in spite of committing itself to no let-up in capital expenditure in a pre-election year, the planners in the finance ministry hope for some savings on administrative and revenue expenditure.

The data available for April-October shows that the pace of revenue expenditure for most social sector ministries and some infrastructure ministries has slowed as compared to the same period last year. Some of these ministries and departments are commerce, coal, consumer affairs, corporate affairs, defence pensions, North-East affairs, housing and urban affairs, school and higher education, small and medium enterprises, Ayush, women and child development, panchayati raj, and youth affairs and sports. 

Finance Minister Arun Jaitley has said the fiscal deficit target of 3.3 per cent of gross domestic product (GDP) will be met without any cut in capital expenditure. This comes even though he and other policymakers have admitted that there will be a shortfall in goods and services tax (GST) collections compared to the budgeted estimates.

On the expenditure side of things, the finance ministry is counting on carrying forward some pending subsidy payments to the next fiscal, converting some expenditure allocations into ways and means advance, and squeezing revenue expenditure wherever it can.

The data available with the Controller General of Accounts shows that the fiscal deficit for April-November 2018-19 reached Rs 7.16 trillion, a staggering 114.8 per cent of the full year target of Rs 6.24 trillion, compared with 112 per cent for the same period last year. 

Capital expenditure for the period was 63.8 per cent of the Rs 3 trillion budgeted estimates, compared to 59.5 per cent for April-November last year. Revenue expenditure was 66.4 per cent of the full year target of Rs 21.4 trillion, compared to 70.5 per cent last year.

Capital expenditure is what the government spends on creating new infrastructure and financing schemes. Revenue expenditure is what is spent on salaries, pensions, existing schemes, subsidies, and generally running the day-to-day activities of the government.

A ministry-wise break-up of expenditure is available only for April-October. For that period, total capital expenditure was 59 per cent of the full year target compared with 52.6 per cent for the same period last year. Revenue expenditure was 59.7 per cent compared with 61.5 per cent. These numbers show a definite squeeze in revenue expenditure. Officials, however, are averse to using that term.

“We are not squeezing expenditure. It is simply that the ministries which have not utilised their allocated sums have not been given further allocations. You can expect some savings on revenue expenditure,” said an official. The person did not divulge how much can be saved through lower-than-anticipated revenue spending.

“We certainly will be below the GST target this year and therefore we can cover it up with disinvestment or direct taxes or through some expenditure savings. We will have to see. We are monitoring on a daily basis and I am comfortably hopeful we will be around the 3.3 per cent mark,” Jaitley told Business Standard last month.

Madan Sabnavis, chief economist at Care Ratings, said the government had expedited capital expenditure. “But all governments have run into this problem, that when you come to the end of the year, you face a fiscal squeeze and you compromise on capital expenditure.”  Sabnavis added: “A large part of revenue expenditure is committed in salaries, pensions and subsidy payments. Subsidy payments can be carried forward, but not salaries and pensions.” 

While this implies that the squeeze so far has been on welfare schemes, Sabnavis took a different view. “Revenue expenditure is more important than capital expenditure, especially in an election year. You don’t want to cut down on spending on schemes and open yourself to attack by the opposition. All finance ministers claim they won’t cut capital spending, and they all cut. Revenue expenditure cannot be cut in an election year,” said Sabnavis. 

He predicted that Jaitley would be no different and would also cut capital expenditure and that, by March-end, any shortfall in spending on schemes would be made up.

Successive governments have resorted to time-tested methods of rolling over additional subsidy burdens, taking back unspent amounts from ministries, converting certain expenditure entries to ways and means advance, and running down the cash reserves. 

If these steps are not taken, the Centre could see additional expenditure of at least Rs 45,000 crore this year, over and above the budgeted spending estimates of Rs 24.4 trillion.

Topics :Revenue expenditure of the governmentfiscal deficit

Next Story