Runaway unplanned expenditure far exceeding receipts has increased fiscal deficit to over 50% at Rs 77,740 crores (USD 16.9 billion) more than budget estimates of Rs. 148,686 crores (USD 32.3 billion) in the very first quarter. In recently release data, the Controller General of Accounts (CGA) says that revenue deficit was at 83.4% of total budget (Rs. 70,675 crores of Rs. 84,727 crores) estimates from 49.6% in the previous year.
CGA blamed the widened fiscal deficit on increased expenditure at Rs 131,470 crores equal to 28.95% of total estimates of Rs 563,991 crores, while receipts were only Rs 53,730 crores or 12.9% of the projections. Almost 85% of revenue receipts were from taxes and 73% of expenses incurred were unplanned (including paying interests). It is not clear why scheduled interest payments are not planned.
With these trends, it is not clear how the Finance Minister continues to assert
that the Government will contain fiscal deficit at 3.8% and revenue deficit at
2.1% per the Fiscal Responsibility and Budgetary Management targets. To make
matters worse, the Government’s coalition partners continue to disallow
disinvestment and also create barriers to
Foreign Direct Investment (FDI).
In addition, the Government also announced a Pay Commission to study pay hikes and benefits revamp to its employees that could likely lead to Rs. 20,000 (USD 4.3 billion) extra expenditure and make the deficit situation worse. This move will certainly hurt state Government budgets as well which would most likely seek Federal bailouts to avoid bankruptcy. The only bright side is that this will happen in the next fiscal year but some of the burden may be absorbed this year as an interim measure.
The Economic Survey 2005-06 advised the Government to remain vigilant on boosting pay-scales in populist fashions as the Fifth Pay Commission's recommendations caused the general fiscal deficit to grow consistently to peak at 9.9 per cent in 2001-02. It is not clear how Prime Minister Manmohan Singh continues to assert that the Pay Commission will not hurt the fiscal condition