Interim Budget 2019: FM has cheap crude oil to thank for his fiscal record

The Narendra Modi administration prides itself on its fiscal record. Since Finance Minister Arun Jaitley took charge in the North Block, the budgeted fiscal deficit as a percentage of gross domestic product (GDP) has come down from 4.1 per cent in 2014-15 to 3.3 per cent in 2018-19.

 

While in absolute terms, the current administration’s record has been better than the previous ones, two factors have led to this. One, the Modi government has been lucky compared to the Manmohan Singh government in terms of global macroeconomic conditions and oil prices. And two, it has resorted to off-budget financing, carrying over of subsidies and expenditure cuts heavily.

 

Based on the data available on the website of the Ministry of Petroleum and Natural Gas, the average price of the Indian crude basket from 2009-10 to 2013-14 was Rs 96.24. The average price from 2014-15 till end-September 2018-19 stood at Rs 61.60, a fall of 26 per cent. The price of crude oil price in any year determines the petroleum and fertilizer subsidies that the government ends up paying.

 

In a report tabled in the recently concluded Winter Session of Parliament, the Comptroller and Auditor General of India (CAG) criticized the government for its use of off-budget financing for capital expenditure needs, as well as to defer subsidy arrears.

 

In the report, which covered the 2016-17 fiscal year, the CAG said off-budget financing was being used to defer fertiliser arrears, food subsidy bills and outstanding dues of Food Corporation of India (FCI) through borrowings.

 

“It is evident that there was increase of about 350 per cent in carried over subsidy arrears (for FCI) in the five years preceding 2016-17, which require financing from a number of methods, including very high interest cash credit facility,” the report stated.

 

Successive governments have resorted to time-tested methods of rolling over additional subsidy burden, taking back unspent amounts from ministries, converting certain expenditure entries to ways and means advance, seeking interim dividends from state-owned entities and running down cash reserves.

 

For 2017-18 too, Rs 50,000 crore was taken back from the FCI to help the government meet a revised fiscal deficit target. It had been earlier classified as capital expenditure, but was later converted to a “ways and means advance”, which needs to be returned within a financial year. And yet, the revised expenditure for the year overshot the budgeted estimate by about Rs 71,000 crore.

 

The 2014-15 budgeted and actual expenditure figures show the Modi government cut expenditure by Rs 1.3 trillion to come in with a fiscal deficit of 4 per cent of GDP compared with 4.1 per cent.

 

For 2018-19, the target of 3.3 per cent looks difficult to meet unless there are major expenditure cuts again. Jaitley has said the fiscal deficit target will be met without compromising on capital expenditure. There has also been repeated admissions by him and others in the government that the GST proceeds will be well short of targets. Now, there are also concerns regarding direct taxes and non-tax revenue.

 

On the expenditure front, the finance ministry is hoping for some savings on administrative and revenue expenditure.

 

And, the data available for April-October shows that the pace of revenue expenditure for most social sector ministries and some infrastructure ministries has indeed slowed down, as compared to the same period last year.



Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel