• SEPTEMBER 2, 2000

Improving economic numbers pour in

The prodigal government seems to be getting its house in order. Or so it seems. According to the latest figures announced for the first four months of the current fiscal year, the government’s fiscal deficit has shown a more sedate growth than in the previous year. Better still, the trend of a slower growth in non-plan expenditure as compared to plan expenditure continues.

    % to budget estimate
(Rs bn) Actuals# FY01 FY00
Revenue Receipts 425.7 20.9 18.4
Non Debt Capital Receipts 25.2 10.7 10.4
Total Receipts 450.9 19.8 17.6
Non Plan expenditure 572.3 22.9 29.2
Plan Expenditure 235.0 26.7 27.9
Total Expenditure 807.3 23.8 28.8
Fiscal Deficit 356.4 32.0 57.4
Revenue Deficit 250.0 32.3 62.8
Primary Deficit 107.5 107.4 (255.8)
# April - July 2000      

Revenue receipts are growing faster (as percent of budget estimates) than the rate witnessed last year even as expenditure growth has slowed down. These factors have contributed to a taming of the fiscal deficit. However, one factor that needs to be factored in is the possibility of receipts from disinvestment of public sector units (PSUs). Presently, there have been no inflows on this account (and it is unlikely that there will be a significant amount of inflow from this source). But a successful disinvestment or two could greatly improve the fiscal scenario.

Will the stock markets react to these numbers? It is unlikely given that in the past investors have shrugged off such news. However, if such a development were to sustain, we would be witnessing an improvement in the financial health of the government. This could imply that in the coming budget there would be lesser pressure to step up taxes to meet the shortfall in revenues.

The picture is not all rosy. The Oil Pool Account, which our ingenious politicians shifted out of the budget, is fast accumulating a deficit (an off balance sheet subsidy). If prices fail to correct or the government does not raise prices, there is a possibility that the finance ministry may have to come to the rescue – either in terms of lower customs duty on crude imports or a one-time grant to balance the account. In either case the solution would prove to be temporary (if crude prices continue to remain perched at existing levels). A permanent solution would be to mark to market prices of products, but that is a big political gamble and therefore unlikely to happen, especially in an environment of rising prices.

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