The government in its interim budget for 2014-15 has projected a fiscal deficit of 4.1% of GDP. The total fiscal deficit is estimated at Rs 5286 billion (Rs 5,28,600 crores). At 4.1% of GDP, the nominal GDP works out to Rs 1,28,934 billion, a growth of 13.1% over estimated 2013-14 GDP. Nominal GDP growth for 2012-13 was 11.9%.
The fiscal deficit is to be financed largely by market borrowings. The government is budgeted to borrow Rs 4570 billion (net of redemptions and buybacks) in fiscal 2014-15. The borrowing numbers are positive given that it is lower than 2013-14 borrowing of Rs 4680 billion, a fall of 2.1%. Table 1 gives the GDP growth, fiscal deficit and borrowing figures for 2013-14 and 2014-15.
Is the fiscal deficit target of 4.1% of GDP achievable for 2014-15? The government is working on the assumption of a broad pick up in the economy in projecting a lower fiscal deficit. The government has projected a 10.3% increase in total expenditure in 2014-15 with plan expenditure up by 14% and non plan expenditure up by 8.3% over 2013-14 revised estimates. Hence the government believes that higher spending in plan expenditure coupled with broad pick up in exports and monetary policy easing by the RBI will push up growth.
The government had to cut back non plan expenditure by 14% in fiscal 2013-14 to keep fiscal deficit at 4.6% of GDP. The intentions of the government are fine in sticking to fiscal deficit targets but if that intention is financed by lack of growth due to cut in plan expenditure, then it throws doubt on fiscal sustainability.
The fact that the subsidy bill for 2014-15 is similar to that of 2013-14, which was higher by 11% over budget estimates suggest that broad subsidy bill cannot be brought down. Food subsidy has been hiked by 25% to Rs 1150 billion to provide for the food security bill and this has taken up the overall subsidy bill.
The government that comes into power in May 2014 will have a lot of work to do to keep fiscal deficit at 4.1% of GDP.