HYDERABAD: India’s general deficit, or combined fiscal deficit of the Centre and states, is blowing hot and cold. While we were all looking the other side, obsessing over the Centre’s potential deficit breach of 3.4 per cent of GDP in FY18 and FY19, the general deficit fell to a decade-low of 5.8 per cent in FY18 — the third-lowest on record since 1990s. The FRBM Act mandates a general deficit of 6 per cent by FY21, but that feat has to be achieved three years ahead. But don’t pop the champagne yet, as the deficit stood lower because states underspent their budget estimates. Also, the sub-6 per cent figure was a touch-and-go and may overshoot to 6.2 per cent in FY19.
In FY18, states spent between 77 and 99 per cent of their respective budgeted figures. This includes large states like Maharashtra and Uttar Pradesh, who didn’t even achieve 90 per cent of their spending target. On an aggregate basis, states’ spending stood at Rs 27.2 lakh crore as against the projected Rs 30.3 lakh crore in FY18. In other words, real spending grew a slim 6 per cent than the projected 14.4 per cent, leading to lower market borrowings unlike the Centre, which took more-than-the targeted debt. Consequently, states’ FY18 deficit as a percentage of GDP stood at 2.4 per cent, shades lower than the estimated 3.1 per cent and targeted 3 per cent.
But given the election year, states resorted to a spending binge in FY19. Evidence came from the first nine months’ data that showed real spending growing at a faster clip of 9.2 per cent. Expenditure is on a full-throttle, or an estimated 26 per cent — higher than states’ total receipts that are projected to grow at 24.3 per cent. Receipts are likely to touch a six-year low of 9.4 per cent in FY20, while spending is projected at a 17-year low of 7.5 per cent, but even a mild deviation could pressure states to borrow more, risking the breach in deficit target yet again.
“States’ spending in FY19 is also likely to be much lower than suggested by FY19RE, implying that FY20BE is also unreliable... If the Centre and the states decide to achieve their fiscal deficit target of 3.3 per cent (with new GDP) and 2.5 per cent of GDP respectively for FY20, fiscal (real) spending is likely to grow only 6.2 per cent in FY20. If so, real GDP growth would weaken further to 6.8 per cent in FY20, lower than market consensus and the RBI’s forecast of 7.2 per cent,” noted Nikhil Gupta, lead economist, Motilal Oswal.
As against the budgeted Rs 34.1 lakh crore for FY19, states’ actual spending is likely to be Rs 31.2 lakh crore, implying growth of 14.9 per cent in FY19. States’ fiscal deficit target for FY19 is set at 2.6 per cent, revised lower from the initial projection of 2.8 per cent. However, their net market borrowings stood at only Rs 3.62 lakh crore, implying that their fiscal deficit too could print lower at Rs 4.8 lakh crore, or 2.5 per cent of GDP. Still general deficit figure of 6 per cent may be breached should the Centre’s target plays spoilsport.