The surprising element about the new budget (2013) is that government’s proposed borrowing is mild, despite having a 16% increase in expenditure. This reduced borrowing and fiscal deficit which are surprising outcomes of the just presented budget comes in a year where GDP growth rate is one of the lowest in the last ten years.
In the absence of noticeable tax revenue growth (because of poor GDP growth), the Finance Minister has invented some tactical but questionable measures to ensure fiscal consolidation in the budget. The major such measures aiming at revenue mobilization and expenditure compression are analyzed below.
First of all, consider the case of fuel subsidies. The Finance Minister has made a reduced fuel subsidy bill of Rs 65000 crores which is Rs 32000 crores less compared to the figure of Rs 97000 crores for the current year (rounded figures). Here, expectation of the FM is that fuel subsidy can be brought down based upon the quickness of the diesel price deregulation.
Similarly, on the food subsidy front, the Finance Minister increases allocation by just 5000 crores to meet the amount needed to provide food security to all the people. In an election year, the National Food Security programme is the trump card of the government. It is noticeable that there is only an increased allocation of just 10000 crore Rupees to meet the food security requirement. This is not adequate given the constitutional binding and history of other programmes on this front. An important lesson is the RTE Act, where, the government had spent thousands of crores of Rupees already to realize the constitutional obligation. Hence, the food subsidy allocation is not enough to meet the requirements and may overshoot the stipulated amount.
The second weak element is on the revenue front where, the FM has relied on disinvestment to mobilize Rs 55814 crores. This is one of the largest disinvestment programme envisaged in the history of budgets. The target is quite high and need extra effort to realize it. A major difficulty of the strategy here is that disinvestment revenue largely depends on the market conditions which remain turbulent. Notably, the disinvestment targets were missed in the last few years.
These are two major weaknesses of the budget on the fiscal discipline front. But overall, the FM and his team is to be congratulated for ensuring a very successful expenditure compression programme for the current year. The expenditure has been cut by nearly 60000 crore rupees for the current year (from Rs 149000 crores to 146000 crores rupees).
Understandably, the FM is devoid of revenue to launch popular programmes in a politically important budget. But he has loosened in making some unrealistic projections on both revenue and expenditure fronts to introduce the element of fiscal discipline.