Government Accounts of India

Fragile fiscal health as fiscal deficit rises to 4% of GDP by Jan'18.

Published monthly by Controller General of Accounts (CGA), Ministry of Finance, GoI. Updated to the month of January 2018. (Published on February 28, 2018)

Recent Data Trend

Centre's gross fiscal deficit reached 113.7% of its revised budgeted estimates (BE) (Rs.5.9 trillion) during Apr'17-Jan'18. This was equivalent to Rs.6.76 trillion (4% of GDP), higher than the revised budgeted target of 3.5% of GDP for 2017-18. The breach of fiscal deficit target by a significant amount raises concern and with just two months left in the fiscal year, we can't expect any improvement on the fiscal front.

The rising fiscal deficit in 2017 can be attributed to various factors including front-loading of expenditure (early presentation of Budget 2017-18), weak non-tax revenue collections and underperformance of goods and services tax collections accruing to the centre.

The total expenditure by end Jan'18 reached 83% of the BE amounting to Rs.18.4 trillion with 86% of it being accounted by revenue (non-productive) expenditure. The productive capital expenditure stood at Rs.2.6 trillion by end Jan'18 a mere 14% of the total expenditure. Further, the government even lowered its budgeted capital expenditure for 2017-18 to Rs.2.7 trillion for Rs.3 trillion. This indicates that government is not willing to use resources for capital addition or to support growth in the medium-term.

The GST collections stood at Rs.1.3 trillion during Apr'17-Jan'18, while the non-tax revenue stood at only 53% of the revised budget estimates. The government revised the BE for non-tax revenue to Rs.2.3 trillion from the earlier set target of Rs.2.8 trillion for 2017-18. Based on the earlier BE, the non-tax revenues would have been just 43% of BE, significantly below the historical performance.

The worries related to fiscal slippage have heightened as the centre has already breached the fiscal deficit target for FY2018 and is likely to go beyond the 3.3% GDP target for FY19 as a pre-election year warrants low fiscal prudence. The government will be tempted to spend more on populist policies prior to the general elections of 2019. Given the above developments, we believe one needs to be cautious of the risks of fiscal slippage in this year as well as the next year.

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 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. 


   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: March 31, 2018