Fiscal Deficit (Union government)

Time for the government to push expenditure to revive India's stalling economy.

Published monthly by Controller General of Accounts (CGA), Ministry of Finance, GoI. Updated till December 2019. (Published on January 31, 2019)  

Recent Data Trend

Rolling 12-month sum of India's gross fiscal deficit as a % of GDP worsened further by widening to 4.43% in December. In absolute terms, it stood at Rs. 9.3 trillion, equivalent to 132.4% of its budgeted estimate for FY2019-20 (FY2019-20 represents the period April 2019-March 2020). This is mainly on account of a weaker tax revenue collection (both direct and Goods and Services Tax (GST)) due to sluggish economic growth. Growth in tax revenue measured in terms of 12month average YoY has been seeing a downward trend since June 2018 and has reached an unprecedented low of 0.5% in December.

Lower confidence on meeting disinvestment target by the end of FY2019-20 along with a downward revision in country's nominal GDP growth to 7.5% from 12% projected earlier (as per CSO's first advance estimate) have further reinforced the breaching of fiscal deficit target of 3.3% of GDP for FY2019-20.

The government's total expenditure is in line with its long term trend of spending nearly 75% of its full-year target by December. Also, the 12month average YoY growth in the same has been accelerating since June 2019 and stood at 13.8% in December. However, in light of the slowing economy and when compared to the growth in government expenditure between the years 2008 and 2009 following the Lehman crisis, the government's expenditure appears to be low.

By staying prudent on spending due to revenue crunch, the government has been trying to keep the fiscal deficit from ballooning considerably in FY2019-20. However, the possibility of a recession in the near future due to the continual slowdown in economic growth since April-June quarter 2018 hints that it's about time the government let go of the obsession with achieving fiscal deficit target to stimulate the economy.

Brief Overview

The central government accounts are divided mainly into two parts- Revenue Account and Capital Account. The revenue account consists of revenue receipts and revenue expenditure. Revenue receipts are accumulated from tax revenues (both via direct and indirect taxes) and non-tax revenues (interest payments dividend & profits etc.), while the revenue expenditure is broadly the expenditure which doesn't result in the creation of assets (administrative expenses of government, interest charges on debt incurred, subsidies etc.)

Similarly, the capital account consists of capital payments and capital expenditure. The capital receipts mainly include recoveries of loans & advances and earnings from disinvestment while the capital expenditure is the expenditure on acquisition of buildings, lands, and investments in bonds, shares etc.

The excess of expenditure over receipts (on both accounts) gives the fiscal health measure of the government known as the gross fiscal deficit (GFD). Another important gauge of fiscal operations is the revenue deficit (excess of expenditures over receipts in the revenue account). The increase in revenue deficit generally implies that the government is increasingly using its finances to fund its recurring non-productive expenses and no actual asset creation is taking place. To discipline the government in its financial management, the Fiscal responsibility, and Budget Management (FRBM) Act was brought in during the UPA regime in 2003. This act aimed at bringing fiscal discipline by reducing India's fiscal deficit (5.7% of GDP in 2003) to 3% of GDP and elimination of revenue deficit by March 2008. (Revenue deficit stood at 2% of GDP or fiscal year 2016-17)

Government Accounts- Annual

Note: The years represent the fiscal years so 2017 denotes FY 2017 (April 2016-March 2017). The values for FY 2019 and FY 2020 represent the budget estimates for the fiscal year April 2018- March 2019 and April 2019- March 2020. 

Glossary

   Revenue Receipts

The earnings made by the government which neither create liabilities or reduce assets of the government. For example, receipts from tax collections, interest on investments, dividend earnings and earnings from services provided.

Revenue Receipts = Tax Revenue + Non-Tax Revenue

   Capital Receipts These are capital receipts which do not create debt for the government such as recovery of loans made and selling a stake in a public company.
   Non-capital expenditure It is the expenditure made by the government on a recurring basis such as administrative expenses, interest payments on loan taken by the government, pensions, subsidies etc. In government official statistics it is called 'Revenue expenditure'.
   Capital expenditure It is a productive, asset-creating (or liability reducing) long-period, non-recurring expenditure of the government. For example; expenditure on creating the infrastructure (roads, electricity dams etc.), loans made to state governments and repayment of loans by the central government (reducing liability).
   Fiscal Deficit The fiscal deficit of the government is the difference between the total expenditure incurred and the total non-debt capital receipts (total receipts minus the earnings from borrowing) of the government. It indicates the total borrowing requirements (incl. the need for interest payments) of the government.
   Revenue Deficit It is the difference between the revenue receipts and the revenue expenditure of the central government. Revenue deficit indicates the excess amount of expenditure by the government to fund current consumption needs rather than for productive asset-creation.
   Primary Deficit It is the difference between the fiscal deficit of the current year and the interest payments on the previous borrowings made by the government. It indicates how much of the government borrowing is going to meet expenses other than interest payments.

 

For more information please visit the official government website.

Next Release Date: February 28th, 2020