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Govt may lower revised estimate of budget support to Central plan

04 Jan 2013 Evaluate

In a move to keep the fiscal deficit under check, the union government may lower the revised estimate of budget support for the Central plan in the current fiscal, which will be announced in the forthcoming Budget. The government is planning to lower the Central expenditure for various Central ministries and departments in the range of 20-30%. Even if 10% overall cut is assumed, it can result in saving of approximately Rs 40,000 crore. Since budgeted funds for public enterprises cannot be lowered normally, so the only option left for the government is to cut budget support for Central plan.

In budget document, expenditure has been classified into plan and non-plan expenditure. In which, plan expenditure is further divided into Central Assistance for States’ and Union Territories’ plan, budget support for Central plan and resources for public enterprises. Normally, non-plan tends to go up and Central assistance for States and Union Territories is difficult to reduce. Any saving from the budget support for central plan can be used for increasing non-plan expenditure.

However, it seems difficult for government to contain the fiscal deficit for current fiscal because of high subsidy burden. The government has already taken approval from Parliament to spend additional Rs 28,500 crore for the petroleum subsidy, but this will not be sufficient, as there is demand for additional Rs 70,000 crore. Also, the fertilizer ministry has recently asked the finance ministry for a ‘special banking arrangement’ to draw a loan of Rs 25,000 crore for subsidy payments and both direct and indirect taxes are also growing below the annual target.

However, in terms of non-tax revenue, the government is hopeful of getting Rs 30,000 as targeted through divestment but may not be able to meet the budgetary target for spectrum auction. Meanwhile, the government has revised the fiscal deficit to 5.3 per cent from 5.1 per cent. But according to the prevailing macro-economic scenario the actual deficit may go more than 5.5 per cent. A 10 basis-point increase in the fiscal deficit requires approximately Rs 10,000 crore to cover that.

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