Fiscal deficit surges to 94% of budgeted target in April-November FY2014

Moneylife Digital Team 02 January 2014

Fiscal stress has been building up due to weak revenue collection amid a slowing economy, lacklustre asset sales and elevated spending, says Nomura in a research note

The government’s fiscal deficit in the first eight months (April-November) of FY14 reached 93.9% of the full-year budgeted target compared with 80.4% in the same period last year. Fiscal year-to-date (FYTD), net tax revenue growth remained muted at 7.2% year-on-year (versus the budget target of 19.1%), while expenditure growth at 17.7% year-on-year was higher than the budgeted target of 16.5%. In November 2013, government spending grew at 12.5% year-on-year, lower than 32.2% year-on-year in October 2013, whereas net tax revenues grew at 11% year-on-year versus 23.4% year-on-year in October 2013. These statistics are given in a research note by Nomura and the key data are given in the following table:

According to Nomura, fiscal stress has been building up due to weak revenue collection amid a slowing economy, lacklustre asset sales and elevated spending. The government looks likely to miss its revenue target owing to weaker-than-budgeted GDP growth, lower-than-anticipated collection under the service tax amnesty scheme up to November.

According to Nomura analysts, “Our fiscal run rate monitor suggests that the run rate on the fiscal deficit remains high as the government is yet to cut back on expenditure even as tax revenue growth remains much weaker than expected.” This is shown in the following figure:

The research note remarks, in such a scenario, the government faces the Hobson’s choice of either sharply paring back on spending in the next four months to enable it to meet its fiscal deficit target of 4.8% of GDP in FY14 (but at the expense of hurting growth) or supporting growth by continuing to spend but missing its fiscal deficit target, inviting the ire of rating agencies and investors and damaging its own credibility. It expects the government partly to cut spending and partly to delay payments until the next fiscal year in order to meet the fiscal deficit target, which would hurt GDP growth in H1 2014.

Comments

User

Yerram Raju Behara

1 decade ago

Government's credibility is already at the low end. With the next few months to distribute their pre-election free bites, and with 'trust deficit' already looming large on UPA regime, the government would risk higher fiscal deficit. They should be now sure that they would not be the choice of the majority at the next bourses. They would not mind handing over empty treasury to the next government! The risk is for them and fun would be for the opposition benches. Political economy is in for a serious toss with no clue as to where and to what extent the free bites have to go. Unless we have a strong government at the Centre capable of pushing economic and financial reform agenda, it may be difficult to see India on the growth turnpike.