2-month fiscal deficit soars to 52% of full-year target

New Delhi: The government's fiscal deficit touched 52 per cent of the budget estimate for the full year in the first two months of 2019-20. In absolute terms, the fiscal deficit or gap between expenditure and revenue, was Rs 3,66,157 crore, as per the data released by the Controller General of Accounts (CGA). The fiscal deficit was 55.3 per cent of 2018-19 budget estimate in the year-ago period. In the Interim Budget passed in February, the government had estimated the fiscal deficit at Rs 7.03 lakh crore for 2019-20.

The government aims to restrict the fiscal deficit at 3.4 per cent of the GDP during the current fiscal, same as the last financial year. The CGA data showed that revenue receipts of the government during April-May, 2019-20 was 7.3 per cent of the Budget Estimate (BE). In the year-ago period also, the revenue receipts were at similar level.

However, the capital expenditure was only 14.2 per cent of the BE as compared to 21.3 per cent in the year-ago period. Total expenditure during April-May period stood at Rs 5.12 lakh crore or 18.4 per cent of BE. It was 19.4 per cent of BE in the corresponding period of the last fiscal.

According to the minutes of the last Reserve Bank of India (EBI) policy meeting, Deputy governor Viral Acharya and his boss Shaktikanta Das seemed to be on completely different pages on the fiscal deficit front, with the departing technocrat flagging it as a concern and the governor underlining his optimism on the same,.

While the career bureaucrat-turned-central banker Das was sanguine on government walking the fiscal prudence path — which was missed three out of the five budgets of the Modi government — Acharya, a trained economist who teaches the subject, pointed to the fiscal slippages as a worry.

As per the minutes released last week, Acharya acknowledged that the consolidated fiscal deficit of the Centre and the states has gone down since 2013, but flagged fiscal slippages amidst missing tax collection targets and falling growth rates as an upside risk to inflation estimates.

According to Acharya, this was primarily due to public sector borrowing requirements- which appropriately accounted for extra-budgetary resources and other off-balance sheet borrowings by the Centre and the states.

Public sector borrowings have now reached between 8 and 9 percent of GDP, a level which was last seen in 2013, during the taper tantrums of the US Fed, Acharya argued, as per the minutes of the June 6 policy meeting wherein despite his concerns Acharya chose to go with the majority view to cut rate by 25 bps to a nine-year low level of 5.75 percent. But the minutes gave ample indication of his mind, which was not convinced with the arguments for the third successive rate cut. And he took refuge in Ernest Hemingway's lines before going with the majority view of cutting the rates for the third time, displaying a rare quality.

Quoting Santiago the old fisherman in the novel, Acharya expressed his melancholy in voting with the majority: "It is better to be lucky. But I would rather be exact. Then when luck comes, you are ready." Das said on the other hand argued that several public sector units which have their own revenue streams to service their debt and thus can take care of their liabilities.

"Borrowings by public sector enterprises are mostly for capex. Hence, such borrowings should be viewed differently," the governor argued.

But Acharya explained that the rise in borrowings by public sector units reflect a "structural pattern" of greater government spending and not just cyclical such as due to weak tax collections from low growth.