- Manika Premsingh
The vote-on-account presented by Finance Minister Mr P Chidambaram today has laid out an extremely positive projection for the fiscal deficit achievable in 2013-14. The deficit projection of 4.6% of GDP has actually been revised down from 4.8% as laid out in the budget of 2013-14.
The reduction in this ratio has received some minor support from a small increment in GDP projections, though that is not the only reason, since it is not just the ratio that is expected to be better than budgeted in 2013-14. A few calculations (see table below) on the absolute figures projection for fiscal deficit indicates that the centre expects the amount of deficit to be lesser than initially forecast by Rs. 218 billion.
This looks like a daunting challenge to achieve.
This is because 95% of the fiscal deficit projected for the year has already been accumulated in the period up to December 2013. Thus, we have only one quarter of numbers to bank on to fulfil the new projections set out by the centre. In order to achieve this, the fiscal deficit for quarter four of 2013-14 (Q4) will have to fall significantly from the average quarterly accumulation so far. In fact, it will have to be at around only 2.5% of the average quarterly figure observed so far. In terms of actual numbers, so far the quarterly average deficit has been Rs 1.7 trillion, and it will have to shrink to around Rs 44 billion in Q4 to achieve the target.
On the other hand, if we assume that the deficit will continue to accumulate in line with trends observed so far in 2013-14, we actually have a fiscal deficit number of around Rs 6.9 billion, which is around 6.1% of the GDP. In effect, we are then looking at a fiscal deficit-GDP ratio that is 1.5 percentage points in excess of the forecast 4.6% as per the vote-on-account.
To be fair, the centre does acknowledge the ballooning of the fiscal deficit during the April-December 2013 period. It also provides some justification for the targets by saying - “However, with active fiscal policy stance for consolidation, including rationalization of expenditure and concerted efforts for mopping up resources, government steered back to the consolidation targets.”
In light of this statement, it is possible that some course correction on the fiscal deficit front could take place, but that would require a significant cut back in expenditure and increase in revenue receipts. At any rate, the extent of correction remains to be seen. It would be safe to assume that the final number would lie somewhere between that predicted by the trend analysis and the centre’s own projections.