Report of Fiscal Deficit

irement from all sources to finance its expenditure.  Fiscal deficit is expressed as a percent of GDP which indicates capacity of a country to borrow in relation to what it produces. High % to GDP means government is borrowing beyond its capacity in relation to what its producing which is its income.

Source: Budget Document

(` Bn)

Table below shows break up of expenditures and receipts and fiscal deficit calculation. 2000 1814.8 1282.7 532.1 1157.1 101.3 17.2 1038.5 2971.9 2218.7 761.8 2980.5 1047.2 2001 1926.1 1366.6 559.5 1341.8 120.5 21.3 1200.1 3267.9 2429.2 826.7 3255.9 1188.2 2002 2013.1 1335.3 677.7 1625.0 164.0 36.5 1424.5 3638.1 2611.2 1011.9 3623.1 1409.6 2003 2308.3 1585.4 722.9 1805.3 341.9 31.5 1431.9 4113.7 3017.8 1114.7 4132.5 1450.7 2004 2638.1 1869.8 768.3 2113.3 671.7 169.5 1272.2 4751.5 3489.2 1222.8 4712.0 1232.7 2005 3059.9 2248.0 811.9 2003.9 620.4 44.2 1339.2 5063.8 3659.6 1322.9 4982.5 1257.9 2006 3470.8 2702.6 768.1 1795.5 106.5 15.8 1673.2 5266.3 3651.0 1406.4 5057.4 1464.4 2007 4343.9 3511.8 832.1 1490.0 58.9 5.3 1425.7

5833.9 4135.3 1698.6 5833.9 1425.7 2008 5418.6 4395.5 1023.2 1708.1 51.0 388.0 1269.1 7126.7 5075.9 2050.8 7126.7 1269.1 2009 5402.6 4433.2 969.4 3437.0 61.4 5.7 3369.9 8839.6 6087.2 2752.4 8839.6 3369.9 2010 5728.1 4565.4 1162.8 4516.8 86.1 245.8 4184.8 10244.9 7211.0 3033.9 10244.9 4184.8 2011 7884.7 5698.7 2186.0 4088.6 124.2 228.5 3735.9 11973.3 8183.0 3790.3 11973.3 3735.9 2012 7669.9 6422.5 1247.4 5517.3 142.6 154.9 5219.8 13187.2 8921.2 4266.0 13187.2 5219.8 2013(BE) 9356.9 7710.7 1646.1 5552.4 116.5 300.0 5135.9 14909.3 9699.0 5210.3 14909.3 5135.9

1. Revenue Receipts 2. Tax Revenue (net to Centre) 3. Non-tax Revenue 4. Capital Receipts (5+6+7) 5. Recoveries of Loans 6. Other Receipts 7. Borrowings and other Liabilities 8. Total Receipts (1+4) 9. Non-plan Expenditure 10. Plan Expenditure 11. Total Expenditure (9+10) 12. Fiscal Deficit {11-(1+5+6)} Source: Budget Document

Tax revenue (net to centre) means tax revenue to government after adjusting for tax revenue to states as around 30% of tax revenue is shared with states and 70% is retained by central government. Other receipts under capital receipts is basically disinvestments.Borrowings which is part of capital receipts is excluded while calculating fiscal deficit as it is for funding the deficit.

Government Receipts  Chart below gives snap shot break up of government receipts and % contribution to its sub heads.(% contribution as per data given in FY13 Budget Estimates (BE). Goverment Receipts Revenue (95.7%) Tax (82.4%) Direct Tax (51.8%) Personal Tax Corporate Tax Indirect Tax (48.8%) Custom Duty Excise Duty Service Tax Non Tax (17.6%) Interest Receipts Dividends Capital (excluding borrowing) (4.3%) Recovery of Loans (28.0%) Disinvestments (72.0%)

Non Debt Capital Receipts

Chart below shows trend of government receipts in absolute term.

Source: Budget Document

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From both the above charts, its seen government draws its receipts primarily through tax which is part of revenue receipts. Revenue receipts are operating revenue which occurs in normal course of business. Its divided into tax and non tax revenue. Over the years contribution from direct tax has been increasing over indirect tax. Corporate tax contributes to around 66% of direct tax while excise duty contributes around 42% to indirect tax (as per FY13 BE). Over the years service tax contribution towards indirect tax has been increasing from around 4% in 2000 to 23% 2013(BE) which depicts contribution of service sector in GDP has been increasing. Non Tax revenue is interest receipts, dividends or receipts through railways etc.

Government receives interest or dividends on back of its investments or loans its gives. Capital receipts do not occur during normal course of business. It’s when government sells assets or borrows and is divided into debt and non debt capital receipts. Non debt is when government sells its assets or stakes or recovers loans which doesn’t result into repayment of receipt while debt capital receipt are government borrowing and is mainly incurred to fund the fiscal deficit. Though disinvestments shows contributing 72% towards capital receipts, to total receipts it contributes only around 2%. Also when government disinvests, it does get one time amount but loses out on regular income it receives from the companies it has stake which contributes towards it non tax revenue receipt.

Government Expenditure  Chart below gives snap shot break up of government expenditure and % contribution to its sub heads.(% contribution as per data given in FY13 BE)

Goverment Expenditure

Plan (34.9%)

Non Plan (65.1%)

Revenue (80.7%)

Capital (19.3%)

Revenue (89.2%)

Capital (10.8%)

Interest Payments Subsidies various Grants

Defence Loans to states etc

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India follows a plan based model of economy and therefore expenditure is divided into revenue and capital plan and non plan expenditure. Plan expenditure is expense on schemes, projects which is budgeted by the government while non plan expenditure is towards maintenance and support activities. Revenue expenditure is routine government expenditure and does not create any asset for the government.

Revenue expenditure is basically consumption expenditure of government. Revenue plan expenditure is expense towards various schemes and services provided by government while non plan expense includes interest payments, subsidies, grants to states etc. Interest payment forms around 37% of revenue non plan expenditure while subsidies (major one includes food, petroleum, and fertilizer) form around 22% of non plan expense.

Capital expenditure creates asset for the government. It doesn’t include operating expense and is taken as expense for investment which will reap benefits in future. Capital plan expense is basically expense on development related to infrastructure, machinery etc which develops the economy as whole. Non plan part is expense on defence, loans to states etc which will provide income and benefits to government in future.

Fiscal deficit on back of higher capital expenditure is not as bad as it creates assets for the government which will in future increase its receipts. However fiscal deficit on back of revenue expenditure is not good sign as it indicates government is using its receipts and borrowing to finance its consumption rather than investing which in turn hurts economic growth and adds to government debt.

Charts below shows breakup of government expenditure on plan and non plan basis and further plan and non plan is divided into revenue and capital expenditure on absolute basis.

Source: Budget Document

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From above charts, it’s evident government is incurring higher revenue expense under both plan and non plan. This depicts government is spending more on consumption rather than investing.