Central government’s half yearly report card shows that India’s gross fiscal deficit (GFD) touched 82.6 per cent of the budgeted number for 2014-15 in the first six months of the year itself. The ratio was lower at 76 per cent in September 2013. The deficit amounted to Rs.4.4 trillion in absolute terms during April-September 2014, as against Rs.4.4 trillion a year-ago ( The absolute numbers are same but they vary in terms of percentages).
Total government spending rose by 6.6 per cent. In spite of such a modest rise in expenditure the fiscal deficit expanded. This was because of the weak 5.1 per cent growth in government tax collections to Rs.3.2 trillion. You can read the CAG report HERE.
Even though Finance Minister Arun Jaitley put up a brave face and assured the media that he will contain the fiscal deficit to the budgeted figure of 4.1%, several questions arise.
- Is it reasonable to expect a huge improvement in tax collections during the 2nd half of the year ? The numbers coming out on the macro economic front do not look very assuring. India’s core sector IIP grew by a very modest 1.9 % in September. The auto sales number for the month of October ( released by Maruti, hyundai, Toyota etc a few minutes ago) show that consumer spending may be taking a beating once again after giving some hope during the 1st half of the year.
- If the revenue collections of the central government do not show a huge improvement in the next 6 months, the government will either breach its fiscal deficit target or will have to curb spending with an iron fist. Both these scenarios are not good.
In effect, it looks like the Central government will have its own financial issues to tackle. In such case, what will happen to AP which is looking at the Centre to bail it out with generous assistance ? As reported earlier, AP submitted a huge wishlist of projects and is banking on the Centre to get the state declared under ” Special Category states” so that 90% of the approved projects’ cost will be funded by the Centre.. Read our earlier report HERE.
In short, a financially weak Centre will result in reduced support to Andhra Pradesh. AP and its citizens need to be watchful about this possibility.