India losing Fiscal Deficit Targets

December 28, 2011

India’s fiscal deficit reached almost 71% of its full-year target in the first half of the year, casting doubts over its ability to meet budget goals as central finances feel the pressure of squeezed revenues and slowing growth.

India’s fiscal deficit from April to September was Rs 2.92 lakh crore ($60.1 billion),71% of the Rs 4.13 lakh crore target for the current fiscal year, a serious threat to the government’s deficit projection.

What is the Fiscal Deficit?

The difference between total revenue and total expenditure of the government is termed as fiscal deficit. Fiscal Deficit indicates the total borrowings needed by the government. While calculating the total revenue, borrowings are not included. Generally fiscal deficit takes place due to either revenue deficit or a major hike in capital expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development. A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds.

What is the difference between fiscal deficit and primary deficit?

Primary deficit is one of the parts of fiscal deficit. While fiscal deficit is the difference between total revenue and expenditure, primary deficit can be arrived by deducting interest payment from fiscal deficit. Interest payment is the payment that a government makes on its borrowings to the creditors.

What is revenue deficit?

A mismatch in the expected revenue and expenditure can result in revenue deficit. Revenue deficit arises when the government’s actual net receipts is lower than the projected receipts. On the contrary, if the actual receipts are higher than expected one, it is termed as revenue surplus. A revenue deficit does not mean actual loss of revenue.

What is the Government doing now?

Government is thinking of trimming the payout to its mega flagship schemes such as Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) and the Sarva Shiksha Abhiyan (SSA).
While care would be taken to see the schemes don’t suffer because of lack of money, the finance ministry is assessing the ability of these schemes to use up funds already with them, and then make disbursals accordingly.
We should note that these are one of the important schemes which previously have given political boost to the UPA.
Now the Government says that this year’s revenue targets will be missed because it will neither be able to raise Rs 55,000 crore from disinvestment nor rake in a large amount from fresh sale of telecom spectrum.
There are also fears of subsidies on fuel and food overshooting the budgeted levels, piling higher pressure on government finances.
The situation was acknowledged by the Ministry of Finance as tough and Pranab Mukherjee said that it would be a challenge to meet the budgeted deficit target of 4.6% of gross domestic product (GDP).

The government urged all the ministries to release funds only when earlier disbursements had been spent. MNREGA, for instance, started the year with a cash balance of around Rs 20,000 crore and is in line to get another Rs. 40,000 crore in the current financial year. But finance ministry analysis shows that it is unlikely to utilize the entire amount (Rs 60,000 crore) and this may actually help the Centre save on some of the budgeted spending.

The ministries have also been asked to use internally-developed software to check if the money that has already been disbursed is spent or lying idle. Finance ministry asks other govt departments to ensure that no one sits on idle cash.

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