Engineering stagflation

If there is a standout feature to Budget 2013-14, it is this: Finance Minister P. Chidambaram seems to have been overwhelmed by a desire to record a declining fiscal deficit in his books. Having slashed expenditures during the final months of financial year 2012-13 to deliver on the revised fiscal deficit target of 5.2 per cent of GDP, he has chosen to combine optimistic estimates of increases in receipts with substantially curtailed budgeted expenditures to deliver a 4.8 per cent fiscal deficit of the GDP figure for 2013-14. But the FM seems to have manoeuvred much and sacrificed a lot to achieve that goal.

To start with, revenue estimates reflect excessive optimism regarding revenue buoyancy. Total tax revenues are budgeted to rise by 19 per cent relative to the revised estimates for the previous year because of an estimated 17 per cent increase in corporate taxes, 20 per cent increase in income taxes and 36 per cent in service taxes. This, despite the fact that even the proposed increase in taxes on high-income individuals and corporations has been restricted to a surcharge, rather than an increase in rates. In addition, the finance minister has given himself a bonanza in terms of "miscellaneous capital receipts", which refer to funds garnered through disinvestment and measures like the sale of spectrum. That receipts item is projected at Rs 55,814 crore in 2013-14, as compared to a revised figure of Rs 24,000 crore in 2012-13, a budgeted figure for last year of Rs 30,000 crore and an actual for 2011-12 of Rs 18,088 crore. The FM has just presumed that he has a deep till to dip into.

That play with numbers was to be expected. But what is surprising is that this has not helped the minister deliver the expenditure increases expected in the last full budget before the general elections. Relative to last year's budget, total expenditure is expected to rise by only 11.7 per cent, which makes the increase in real terms (after adjusting for inflation) extremely small. That hardly helps when growth has slumped to 5 per cent.

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