The Union Finance Minister’s penchant for window-dressing figures is clearly evident in the interim Budget which he presented to Parliament a few days ago. But nothing he has done changes the fact that the economic scenario is gloomy, writes UTTAM GUPTA
In the interim Budget he presented to Parliament on February 17, Union Minister for Finance P Chidambaram has achieved fiscal deficit at 4.6 per cent of GDP during 2013-14 against target of 4.8 per cent. He has set a target of 4.1 per cent for 2014-15 which is even lower than 4.2 per cent as per roadmap laid last year.
When viewed in backdrop of a shortfall of around Rs 77,000 crore in in tax collections and Rs 30,000 crore in proceeds of disinvestment totalling Rs 1,07,000 crore, this makes one suspect about the quality of the much- touted fiscal consolidation. During the last decade of the UPA dispensation, Mr Chidambaram has mastered the art of mathematical jugglery to camouflage the true inflow and outflows with eloquence. In recent years, Mr Chidambaram has used this with greater alacrity and finesse.
During 2012-13, he came up with a fiscal deficit of 5.2 per cent against a target of 5.3 per cent. Spending was cut by about Rs 1,07,000 crore. And, subsidy payments were short by Rs 1,09,000 crore (Rs 45,000 crore on oil, Rs 32,000 crore on food and Rs 32,000 crore on fertilisers). This gives a total of Rs 2,16,000 crore. But for these, the fiscal deficit for 2012-13 would have been higher by around 2.2 per cent.
Oil subsidies arise due to the sale of diesel, kerosene and LPG at prices below cost. However, the entire differential amount does not come from budget. Oil and Natural Gas Corporation and Oil India Limited are made to contribute a sizeable chunk as discount on sale of crude to PSU oil refineries. Last year, they coughed up Rs 60,000 crore out of a total under-recovery of around Rs 1,60,000 crore.
Add Rs 60,000 crore to the oil subsidy, and this would increase fiscal deficit by another 0.6 per cent. At around 8 per cent, this would be 2.7 per cent higher than the targeted 5.3 per cent. Yet, because of the 5.2 per cent shown on books, Mr Chidambaram was branded as a Finance Minister with reformist credentials.
During 2013-14 too, he has resorted to fiscal manoeuvring with a vengeance. Planned spending has been squeezed by around Rs 80,000 crore. Besides, PSUs were coerced into giving an extra Rs 18,000 crore by way of dividends, worsening the situation.
Likewise, subsidy provisions have been artificially suppressed, showing scant regard for requirements at ground zero. While presenting the Budget, Mr Chidambaram allocated Rs 2,25,500 crore for subsidies. After paying Rs 1,09,000 crore arrears from 2012-13, this would have left only Rs 1,16,500 crore for making payments during 2013-14.
The revised estimate — as per the interim Budget — at Rs 2,45,500 crore is slightly higher by Rs 20,000 crore over budget estimate. This includes Rs 85,500 crore on oil (Rs 20,500 crore more than BE); Rs 68,000 crore on fertilisers (Rs 2,500 crore less than BE) and Rs 92,000 crore on food (Rs 2,000 crore more than BE). When juxtaposed with needs, even these revised provisions are grossly inadequate!
In oil, total under-recoveries during 2013-14 are expected to be Rs 1,40,000 crore. Of this, ONGC and OIL are expected to contribute Rs 56,000 crore. So, balance of Rs 84,000 crore has to come from subsidy. Against this, available funds are only Rs 40,500 crore. Hence, under-payment will be Rs 43,500 crore.
In fertilisers, subsidy requirement is likely to be Rs 74,000 crore (as per Fertiliser Association of India). But, money available is only Rs 36,000 crore. Consequently, under-payment will be Rs 38,000 crore.
In food, the subsidy requirement is estimated to be Rs 1,00,000 crore. But, funds available after netting roll-over from previous year are Rs 60,000 crore. Hence, under-payment will be Rs 40,000 crore.
All put together, rollover to 2014-15 will be Rs 1,21,500 crore. Add to this Rs 56,000 crore contribution from ONGC and OIL towards oil under-recoveries. Total suppression of subsidies would be Rs 1,77,500 crore.
Another Rs 98,000 crore leeway on account of cut in plan spending and extraction of dividends, the total impact of financial engineering during the current fiscal is Rs 2,75,500 crore; this would increase fiscal deficit by around three per cent.
If one removes the smokescreen of subsidy under-payments, artificial compression in spending and extortions from PSUs etc, the real balance sheet of the Union Government throws up a deficit of around 7.6 per cent as against the 4.6 per cent reflected in the Budget.
For 2014-15 too, the Finance Minister has continued with window-dressing the balance sheet. Thus, plan expenditure has been kept at the budgeted level of 2013-14 at around Rs 5,55,000 crore. The funds crisis will cripple oil PSUs, the fertiliser industry, the FCI and all those who deliver subsidies. But, who cares as long as the ‘red line’ is not breached!
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