Fiscal Deficit (Union government)

Centre kicks off the fiscal year with the fiscal deficit of 1.9% of GDP in May'19.

Published monthly by Controller General of Accounts (CGA), Ministry of Finance, GoI. Updated to the month of May 2019. (Published on June 28, 2019)  

Recent Data Trend

During April-May'19, the central government's gross fiscal deficit rose to Rs. 3.6 trillion (52% of budget estimate (BE) for FY20) crossing the halfway budgeted mark. The cumulative level of fiscal deficit in the first two months of FY20 was less than Rs. 3.4 trillion (55% of BE of FY19) in the corresponding period a year ago.

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 FY19. A cut in expenditure to make up for the shortfall in tax collection helped.

In terms of expenditure, the total expenditure reached Rs. 5.1 trillion (18.4% of budgeted value) during April-May'19, with revenue expenditure accounting for around 19% of it. In comparison to last year, given that it was an election year, the government has made a higher level of revenue expenditure.

The cumulative revenue collections stood at Rs. 1.4 trillion (7.23% of BE of FY20) during the first two months similar to 7.4% of BE in the corresponding period a year ago.

Non-tax revenue (that includes interest receipts, dividends and profits) shot up to 10.42% of BE of Rs. 2.7 trillion by end May'19, better than 9% in the corresponding month of last year.

Many investors and analysts are looking forward to the budget to be presented on July 5 2019, in which it will become clear about the government's fiscal consolidation path. The economy needs a stimulus given the faltering GDP growth, a slowdown in consumption in the last few quarters of FY19 and global trade tensions. We believe, the main challenges for the government will remain meeting its over ambitious tax estimates for 2019-20.

The government will have to rely on the sale of big assets, decision from Bimal Jalan Committee for one-time transfer of RBI's reserves and increase its borrowings to commit to fiscal discipline in the following months.

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 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.
   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.

 

For more information please visit the official government website.

Next Release Date: July 31st, 2019