The finance minister presented the vote on account budget in Parliament on Monday. As expected, there were no big announcements. Excise/customs duty on automobiles was reduced a bit. But otherwise the budget was an exercise to balance the income and expenditure of the government. In this context, it was right to not expect anything significant from the finance minister.
The most intriguing aspect of the budget was the government achieving the self imposed target on the fiscal deficit front. The fiscal deficit had been pegged at 4.8% of GDP for FY14. The revised estimate in the budget now pegs it at 4.6% of GDP. How was this achieved? A close look at the details of the budget, tells us the entire story.
As per the Economic Times, the fiscal deficit has been kept in check because of massive cuts in planned expenditure. Here are just two examples. The revised estimate states that the total central plan outlay will be lower by Rs 660 bn in FY14, compared to the original budgeted estimate. Also, the central government's support to the states and union territories has been cut by Rs 171.25 bn.
What about the revenue side? The vote on account budget estimates that gross tax revenues would be lower by 769.64 bn, compared to the original budgeted estimate. This clearly shows that the government has achieved its target by curtailing its expenditure. Thus, the money which was to be spent for infrastructure development has been postponed. This is sure to hurt the economy in the long term.
In addition to all this, the finance minister has also resorted to a few tricks. These include pushing petroleum subsidy payments earmarked for oil marketing companies to the next financial year and not providing the statement of taxes foregone in the budget. This is a statement of the probable loss in revenues, due to the cuts in the indirect taxes that have been announced.
All in all, the vote on account budget had all the characteristics of a fine balancing act. While the finance minister can claim to have improved the economic situation in the country, the reality is totally different. The next government could face a full blown economic crisis if the problems left behind by the UPA are not dealt with quickly.