Reclassification helps govt rein in fiscal deficit to 3.4% of GDP in FY18

The Narendra Modi government has had to depend on some smart accounting and expenditure rationalisation to rein in the 2017-18 fiscal deficit at 3.4 per cent of gross domestic product (GDP), lower than the Revised Estimates (RE) of 3.5 per cent.

The official data for the April-March 2017-18 fiscal deficit will be released on May 31. As reported in Business Standard earlier, the Reserve Bank of India (RBI) transferred an additional Rs 100 billion in surplus to the central coffers, and the Food Corporation of India (FCI) returned nearly Rs 500 billion it was allocated to the finance ministry.

The Rs 500-billion allocation to the FCI had been earlier classified as capital expenditure, but was later converted to a ‘ways and means advance’, which needs to be returned within a financial year. Hence, the expenditure at the end of March will show a reduction by a similar amount.

At the end of any given year, the finance ministry can always count on Rs 200-300 billion in unspent allocations being returned by various central government departments. For 2017-18, the North Block is said to have cut Rs 150 billion from gross budgetary support to the railways, whose minister Piyush Goyal has put emphasis on the ministry, raising its own resources rather than depending on budgetary support. Surprisingly, the defence ministry, which has been prone to returning unspent capital expenditure allocations in the past, did not return any sum last fiscal.

Meeting targets

• Govt depending on expenditure rationalisation to rein in the 2017-18 fiscal deficit to 3.4% of GDP

• Official data will be released on May 31

• RBI has transferred Rs 100 billion additional surplus

• FCI has returned Rs 500 billion it was allocated

• Fiscal deficit for April-February 2017-18 was Rs 7.16 trillion, an overshoot of Rs 1.2 trillion

In an interview to another publication, Economic Affairs Secretary Subhash Chandra Garg said the fiscal deficit for 2017-18 will come in at 3.4 per cent of GDP. He said total revenue was to the RE, while non-tax revenue was somewhat lower than revised numbers.

The total non-tax revenue for 2017-18 was already revised downwards to Rs 2.36 trillion from Rs 2.9 trillion. This shows that dividends from public sector companies and banks, and telecom spectrum revenue, showed weak returns compared to earlier estimates.

Fiscal deficit for April-February 2017-18 was Rs 7.16 trillion, an overshoot of Rs 1.2 trillion, and the highest overshoot for the 11-month period in any recent financial year.