Fiscal Deficit (Union government)

A lower revenue expenditure aided government to meet its fiscal deficit target for FY19.

Published monthly by Controller General of Accounts (CGA), Ministry of Finance, GoI. Updated to the month of March 2019. (Published on May 31, 2019)  

Recent Data Trend

The Central government managed to contain its fiscal deficit, which came in at 3.39% of GDP, marginally lower than 3.4% of GDP projected in the revised estimates of the Budget for 2018-19. By end-March 2019, the fiscal deficit reduced to 6.45 trillion as against Rs. 8.51 trillion (4.5% of GDP) by end-February'19. The huge fiscal surplus of Rs. 2.06 trillion in the month of March helped the government to adhere to its revised target. The government in the interim budget had increased its fiscal space from 3.3% of GDP to around 2.4% of GDP.

The fiscal deficit target of 3.4% of GDP in 2018-19 was met on account of a cut in its expenditure and an increase in non-tax revenue collection. The total expenditure stood at Rs. 23.11 trillion, 5.93% short of the budgeted estimate of Rs.24.57 trillion for FY19. In comparison to the last fiscal year, the government has made a lower level of revenue expenditure, which stood at 93.79% of the budgeted estimate of Rs. 21.41 trillion. This indicates that the government may have cut payouts to some of its schemes in FY19. The capital expenditure was at 95.91% of the full year budget in FY19.

In terms of receipts, the total receipts fell short of the budgeted value for FY19 and stood at 91.4% of budget estimate f Rs. 18.23 trillion. The shortfall in total receipts was on account of low tax revenue receipts, which stood at 88.72% of the budgeted estimate due to lower income tax and GST collections in FY19. The only good was that the non-tax revenue collection was ahead of its target for FY19 by 100.38%, on account of more than expected revenue collection from disinvestment of Rs. 850.45 billion.

There is no doubt that the Modi government first term adhered to its fiscal consolidation path and reduced the fiscal deficit over the years. But, given the rising concerns over a slowing economy, we believe that Modi government second term should do away with fiscal prudence to address the slowing economy in the immediate term.

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 share of GDP for deficits has been calculated using GDP (2004-05=100). The values for 2018 represent the budget estimates for the fiscal year April 2017- March 2018. 

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.
   Capital Receipts The earnings made by the government which creates liabilities (borrowing from the public in form of PPF and small saving deposits, National Pension Scheme etc. ) or reduce assets (divesting stake in a particular company, called disinvestment or recovering loans made to state governments.)
   Non-debt 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.
   Revenue 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.
   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).
   Gross 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.
   Gross 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.

 

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Next Release Date: To be decided.