Government Accounts of India

Centre's fiscal deficit halfway through the budgeted mark.

Published monthly by Controller General of Accounts (CGA), Ministry of Finance, GoI. Updated to the month of May 2018. (Published on June 29, 2018)

Recent Data Trend

During Apr-May'18, the central government's gross fiscal deficit rose to Rs.3.5 trillion (55.3% of budgeted estimate (BE) for FY19) crossing the halfway budgeted mark. The cumulative level of fiscal deficit in the first two months of FY19 was less than Rs.3.7 trillion (68.3% of BE of FY18) in the corresponding period a year ago.

The government is committed to bringing down its fiscal deficit from 3.5% of GDP in FY18 to 3.3% of GDP in FY19. Judging from the first two months, it seems expenditure is being carried out at a gradual pace and the buoyant revenue receipts are mitigating the pressure on the fiscal front.

In terms of expenditure, the total expenditure reached Rs.4.7 trillion (9% of budgeted value) during Apr-May'18, with revenue expenditure accounting for around 86.5% of it. In comparison to last year, the government has made a higher level of capital expenditure. During Apr-May'18, the capital expenditure stood at Rs. 638 billion, 21.4% higher than the previous year level.

The cumulative revenue collections are increasing at a better pace compared to last year. The revenue receipts reached Rs.1.3 trillion (7.3% of BE of FY19) during the first two months compared to 5.5% of BE in the corresponding period a year ago.

Non-tax revenue (includes interest receipts, dividends and profits) stood at 9.8% of BE of Rs.2.5 trillion by end May'18, better than 5.5% in the corresponding months of last year.

Many investors and analysts expect the government to stick to the fiscal consolidation path and meet its fiscal deficit target of 3.3% of GDP for 2018-19. However, we feel otherwise and weigh upon the risks of the high level of expenditure given it is a pre-election year.

Historically, governments have spent more than 7% of the budgeted expenditure in the pre-election year. Many believe that government might resort to cutting back on capital expenditure to avoid fiscal slippage. However, we feel lowering capital expenditure would have its own perils for growth. The increased revenue from stabilisation of GST and the newly introduced e-way bill will surely mitigate the risks of fiscal slippage to some extent but upside risks to fiscal slippage remain.

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: July 31, 2018