Mint

Finance minister P Chidambaram ensured that a fiscal deficit of 4.8% was the “red-line” as he
once described it, by ensuring that the actual number came in at 4.6% of gross domestic product
(GDP), although analysts pointed out that at least some of this had to do with maths.

A significant portion of the reduction in government spending came from a reduction in Plan
expenditure, which could affect growth in the medium term, and some more came from deferring
around Rs.35,000 crore oil subsidy to the next fiscal which could increase the fiscal burden on the
next government.

Plan expenditure is the money spent on creating assets through centrally sponsored programmes
and schemes, while non-Plan expenditure refers to all other spending such as on defence,
subsidies, salaries and interest payments. Plan expenditure was reduced by 14.4% to Rs.4.7
trillion in 2013-14 from the budget estimate, although not all of this was the finance ministry’s
doing, but a reflection of the inability of some ministries to spend money on substantive
programmes.

The government aims to appease international credit rating agencies and the captains of finance
and industry with the lower-than-budgeted fiscal deficit in 2013-14, Subrat Das, executive
director, Centre for Budget and Governance Accountability, said in a statement. “However, this
fiscal consolidation has been achieved solely on the basis of compression of crucial development
expenditure as the government’s poor record in stepping up the tax-GDP ratio has persisted in
2013-14,” he said.

In his interim budget speech, Chidambaram claimed that analysts and rating agencies had
acknowledged the government’s efforts some months ago and no longer speak about a
downgrade.

“I hope that domestic experts will now agree that the UPA (United Progressive Alliance)
government meant what it said when it put fiscal stability at the top of the agenda,” he added.

However, at least some analysts questioned the quality of the deficit.

Mukesh Butani, managing partner of tax advisory BMR Legal, said that the fiscal deficit has been
achieved through deferral of Plan and non-Plan expenditure, a 48% increase in non-tax revenue
and a 64% increase in dividends and profits (from state-owned firms) over the target set out in
last year’s budget. “Considering that the fiscal target was achieved on the back of subdued tax
collection, it could be rated as an achievement. The worrisome part, from a medium-term point, is
slowness in tax collection despite aggressive tax collections due to high pitched assessments
which have become the order of the day.”

While the government’s tax revenue declined 5.4% than the budget target of Rs.8.4 trillion for
2013-14, its non-tax revenues increased 12.2% to Rs.1.9 trillion during the same fiscal, thanks to
the more than expected takings from the spectrum auctions.