In the interim budget presented to Parliament on February 17, 2014 Mr Chidambaram has achieved fiscal deficit at 4.6% of GDP during 2013-14 against target of 4.8%. He has set a target of 4.1% for 2014-15 which is even lower than 4.2% as per road map laid last year.
When viewed in backdrop of shortfall of around Rs 77,000 crores in in tax collections and Rs 30,000 crores in proceeds of disinvestment crores totalling Rs 107,000 crores, this makes one suspect about the quality of much touted fiscal consolidation.
During the last decade of UPA dispensation, he has mastered the art of mathematical jugglery to camouflage the true inflows and outflows with eloquence. In recent years, Mr Chidambaram has used this with greater alacrity and finesse.
During 2012-13, he came up with fiscal deficit of 5.2% against a target of 5.3%. Spending was cut by about Rs 107,000 crores (cut in planned expenditure alone Rs 92,000 crores). And, subsidy payments were short by Rs 1,09,000 crores (Rs 45,000 crores on oil and Rs 32,000 crores on food and 32,000 crores on fertilizers). This gives a total of Rs 2,16,000 crores. But for these, fiscal deficit for 2012-13 would have been higher by around 2.2% or 7.4%.
Oil subsidies arise due to sale of diesel, kerosene and LPG at prices below cost. However, entire differential amount does not come from budget. ONGC and OIL 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 crores out of total under-recovery of around Rs 160,000 crores.
In all fairness, entire under-recovery on sale of these products should come from consolidated fund of India (CFI). This is as per a commitment way back in 2002 when administered pricing regime (APR) was dismantled and government decided to make subsidies transparent to come wholly from CFI.
So, add Rs 60,000 crores to oil subsidy. This would increase fiscal deficit by another 0.6%. At around 8%, this would be 2.7% higher than target 5.3%. Yet, because of 5.2% shown on books, Mr Chidambaram was branded as Finance Minister (FM) with reform credentials!
During 2013-14 also, he has resorted to fiscal manoeuvring with greater vengeance. Thus, planned spending has been squeezed by around Rs 80,000 crores. Besides, PSUs were coerced in to giving an extra Rs 18,000 crores by way of dividends. This gives total leeway of Rs 98,000 crores.
Likewise, subsidy provisions have been artificially suppressed showing scant regard for requirements on ground zero. While presenting budget for 2013-14, FM had allocated Rs 225,500 crores for subsidies. This included Rs 65,000 crores on oil; Rs 90,000 crores on food and Rs 70,500 crores on fertilizers.
After paying Rs 109,000 crores arrears from 2012-13, this would have left only Rs 116,500 crores (225,500–109,000) for making payments during 2013-14. This would include oil: Rs 20,000 crores (65,000-45,000); food: Rs 58,000 crores (90,000-32,000) and fertilizers: Rs 38,500 crores (70,500-32,000).
The revised estimate (RE) – as per interim budget – at Rs 245,500 crores is slightly higher by Rs 20,000 crores over budget estimate (BE). This includes Rs 85,500 crores on oil (Rs 20,500 crores more than BE); Rs 68,000 crores on fertilizers (Rs 2500 crores less than BE) and Rs 92,000 crores on food (Rs 2000 crores 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 140,000 crores. Of this, ONGC and OIL are expected to contribute Rs 56,000 crores (@40%). So, balance Rs 84,000 crores has to come from subsidy. Against this, available funds are only Rs 40,500 crores (85,500-45,000). Hence, under-payment will be Rs 43,500 crores (84,000-40,500).
In fertilizers, subsidy requirement is likely to be Rs 74,000 crores (as per Fertilizer Association of India). But, money available is only Rs 36,000 crores (68,000-32,000). Consequently, under-payment will be Rs 38,000 crores (74,000-36,000).
In food, subsidy requirement is estimated to be Rs 100,000 crores. But, funds available after netting roll-over from previous year are Rs 60,000 crores (92,000-32,000). Hence, under-payment will be Rs 40,000 crores (100,000-60,000).
All put together, rollover to 2014-15 will be Rs 121,500 crores (43,500+38,000+40,000). Add to this Rs 56,000 crores contribution from ONGC & OIL towards oil under-recoveries. Total suppression of subsidies would be Rs 177,500 crores.
Plus Rs 98,000 crores leeway on account of cut in plan spending and extraction of dividends, the total impact of financial engineering during current fiscal is Rs 275,500 crores (177,500+98,000); this would increase fiscal deficit by around 3%.
Remove smokescreen of subsidy under-payments, artificial compression in spending and extortions from PSUs etc, real balance sheet of central government would thus throw up a deficit of around 7.6% as against 4.6% shown in interim budget!
For 2014-15 too, FM has continued with window-dressing of balance sheet. Thus, plan expenditure has been kept at budgeted level of 2013-14 around Rs 555,000 crores.
Allocation for subsidies Rs 246,400 crores is a trifle Rs 900 crores more than current year Rs 245,500 crores. Minus roll-over Rs 121,500 crores, money available for 2014-15 will be Rs 124,900 crores.
In oil, allocation is Rs 63,400 crores; netting carry-forward, available funds will be Rs 19,900 crores (63,400-43,500). For fertilizers, provision is Rs 68,000 crores; minus roll-over, money available will be Rs 30,000 crores (68,000-38,000). For food, allocation is Rs 115,000 crores; net of roll-over, available funds will be Rs 75,000 crores (115,000-40,000).
Available funds in each segment will be woefully short of requirements. In oil and fertilizer, tap will run dry unless drastic reforms are implemented which is most unlikely. UPA II has reversed whatever little it did (e.g. DBT for LPG) and new government may not have gumption to take things forward.
Funds crisis will cripple oil PSUs, ONGC/OIL, fertilizer industry, FCI and all those who deliver subsidy. But, who cares as long as ‘red line’ is not breached!