India’s Interim Budget – Comments

With elections round the corner, the interim budget (called as the vote on account) was passed yesterday 17th February, 2014. Against the run of play, talk to reining in inflation which is what the RBI has been going hammer and tongs with, Chidambaran actually is stoking aggregate demand by cutting excise on small, medium and SUV’s. Election positioning, targeting middle class votes, seems to be on the mind of the finance minister. Other stuff, here it goes,

On the expenditure side,

  • Non plan expenditure (+) 12% YoY (FY14 RE vs FY13, even a comparison with the BE shows a rise) led primarily by interest outgo, which incidentally is the largest component of government expenditure. Interest and subsidies contribute ~ 40% of total expenditure of the government which is why there is so much hullabaloo over subsidies. Rs 2,50,000 Cr (17% of the total spend) of subsidy outgo over food, fuel and fertiliser could have been productively spent.
  • Plan expenditure (+) 15% YoY (FY14 RE vs FY13, however a comparison with the BE shows a fall, (-) 15% contraction led by Plan revenue expenditure which in turn was led by revenue expenditure on central plan).
  • So splurging in the form of higher interest outgo, subsidies continue. Dont create a capital asset. But there’s a curtailment of expenditure which could create assets.

On the receipts side (revenue),

  • Revenue receipts (+) 17% YoY (FY14 RE vs FY13, led primarily by tax revenues and non tax revenues too. Government has extracted its pound of flesh from PSU companies in the form of dividends). However a comparison with the BE shows a fall (-) 2.56% led by an across the board shortfall in collections of direct taxes and indirect taxes primarily excise which (-) 9.16%. This fully captures the slowdown in the economy as a robust economic activity reflects in tax buoyancy.
  • Thus, revenue growth has been tepid. Government has managed to squeeze Coal India and receive special dividend. Tax revenues, although showing a growth over FY13, have slowed down considerably.

On the receipts side (capital),

  • Divestment of equity holding shows no growth.
  • Receipt from small savings shows a healthy growth (+) 35% YoY (FY14 RE vs FY13)
  • Gross market borrowings are the highest ever in absolute terms at Rs 5,97,000 Cr (Market expected a higher amount). Maturities are huge next year, to the tune of Rs 1,39,700 Cr.

So overall on the receipts side, slow down in tax revenues was witnessed. Government managed a higher dividend payout from the hapless PSU’s.

Thus, curtailing productive expenditure and squeezing out a non – recurring receipt has resulted in fiscal deficit as % of GDP to 4.6%. 


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