Judging a finance minister’s performance in September, it is true, tends to portray a more favourable picture given how, in 5 of the previous 7 years, advance tax collections have ensured a fiscal surplus in the month—reported delays in tax refunds may also have helped. Needless to say, last year, when the fiscal deficit of 5.8% overshot the budgeted 4.6% by a long margin, was not one of the years when September was kind to the finance minister. That apart, the finance minister deserves congratulations for reining in expenditure growth for the month to just a little over 1% (it grew 32% in August). But even so, April-September expenditure growth at 32% is far greater than the 15% budgeted for. In which case, it is likely the axe will increasingly fall on Plan expenditure which, in April-September this year, accounted for 38.9% of the full year’s budget as compared to 40.3% in the same period last year. Purists will argue this is a bad idea when private capex is also taking a tumble, but it is also being realistic given the fiscal fragility.
Getting to the 5.3% realistic fiscal deficit target the finance minister has recently outlined, as compared to the 5.1% budgeted, however, will take a lot of doing. Tax collections grew 15% in April-September this year as compared to the budget’s 19.5% target, and the big slippages are in customs (which grew 5% in April-September versus the budgeted 22%) and excise (13.7% versus 29.1%). A big lesson for the Opposition parties that continue to think it is the government’s job alone to make the economy grow is that tax devolution to states was just R1,29,400 crore in April-September 2012 as compared to the R3,06,500 crore planned for the full year—in which case, expect state government budgets to report much larger deficits this year. The larger problem is of a steady fall in tax-to-GDP ratios—from 9.7% in FY05 to a high of 12.62% in FY08 to 10.7% in FY13’s budget—and that’s why the Vijay Kelkar committee report lays stress on getting the goods & services tax and the direct taxes code in place as well as do regular data-mining of tax information. While part of the fall is due to the reduction in excise duty rates in 2008, this doesn’t explain all the fall. Nor is the fall due to the prevalence of tax exemptions which have, in any case, fallen from 90.7% of tax collections in FY10 to 58.7% in FY12. At this point, large slippages are also expected in the telecom auctions (http://goo.gl/EriSj), making hurrying up the disinvestment agenda critical. Though the government can get up to Rs 4 lakh crore (http://goo.gl/I41I3) from lowering its stake in PSUs to 51%, for some reason, the progress here has been glacial.