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Fiscal Deficit at 76.4% of BE; is India on the Right Path?

Author: Bappaditta Jana
by Bappaditta Jana
Posted: Oct 01, 2016

In a report published by the government on Friday the fiscal deficit of India during the five month period between April to August was Rs 4.08 trillion (US$ 61.3 billion) or 76.4 per cent of the budgeted target for the fiscal year ending in March of 2017.A fiscal deficit has been regarded by some experts as a positive economic event. For example, economist John Maynard Keynes has said that deficits help countries climb out of economic recession. The second opinion by the fiscal conservatives is the government should avoid deficits in favor of a balanced budget policy.The fiscal deficit is usually higher in initial months of the financial year as major revenues, including income tax and all the dividends from state companies, in most of the cases are received towards the end of the financial year.In the year ago period, the fiscal deficit was 66.5 per cent of the target of the entire year. Net tax receipts in the first five months of the period 2016/17 fiscal year were estimated as Rs 2.8 trillion.Finance minister Arun Jaitley, who faces the challenge of providing more funds for capital infusion in state banks, aims to cut down the deficit to 3.5 per cent of GDP from 3.9 per cent in the previous year.An encouraging factor was that the government’s capital expenditure rose in August (Y-o-Y) but cumulatively it was noticed to be still down due to a contraction in the first four months.To sum it up, the deficit was at Rs 4.08 lac crores in the first five months of 2016-17 when compared to the government’s Budget estimates of Rs 5.34 lac crores, according to the Controller General of Accounts data released on 30th September. The deficit for the full year has been pegged at a level of 3.5 per cent of gross domestic product (GDP).The economy noticed the pace of rise in the fiscal deficit going down as it was already 73.7 per cent in the first four months and 61.1 per cent in the first three months. For period of April-July 2016, the number stood at Rs 3.93 lac crores, nearly 74 per cent of the budgeted estimates for 2016-17, as compared to 69.3 per cent in the year-ago period.Expenditure of a country is traditionally front-loaded. Besides, the government’s expenditure rose more on capital expenditure in the month of August than revenue expenditure.Capital expenditure was 3.5 times more at Rs 19,949 crores in August against Rs 5,412 crores during the same period of the previous year. On the other hand, revenue expenditure was just a little more at Rs 1.24 lac crores against Rs 1.23 lac crores in the year-ago period.Capital expenditure marks that the money incurred on asset generating projects, while revenue expenditure is on immediate needs like salaries and pensions. The August figures were encouraging as the government started paying higher salaries and pensions from that month due to the implementation of the Seventh Pay Commission recommendations. The government exchequer would see a hit of Rs 84,000 crores this financial year.Even as Indian economy’s growth slowed in the first quarter, it was still faster than China’s 6.7 per cent growth in the same quarter.Fiscal deficit, no matter how big or small, can only be judged by the real growth in the economy in the long-term. Market is the best judge of any development. In a situation of political turmoil due to the India-Pakistan conflict we saw a sudden drop in the Nifty share price, while the Sensex took a massive hit too on Thursday. However, we saw some signs of recovery in the markets yesterday as Nifty spot closed at 8640.65. Similarly, if the market feels that the fiscal deficit in the first 6 months of the 2016-17 has been utilized for the developmental purposes, we will see due growth in the benchmark indices in the coming months.

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A writer by day and a passionate reader by night. Writing just doesn't fill my pocket but it also fills my heart. Passion for writing about new events & happenings is what soothes my mind & soul.

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Author: Bappaditta Jana

Bappaditta Jana

Member since: Jun 26, 2016
Published articles: 280

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