Budget numbers confirm industrial slowdown in FY04

Mumbai: Budget figures indicate that the finance ministry expects industrial growth to slow down in FY04. This is indicated by the estimates in growth for revenue receipts. This slowdown in industrial growth will basically result from poor rural demand in FY04. Poor rural demand follows poor agricultural production with a lag of around a year.

According to finance ministry estimates revenue receipts are expected to grow at 7.2 per cent compared to 17.6 per cent in FY03 as per revised estimates. The budget estimates for FY04 indicate that the fall in revenue receipts will mainly be a result of tax revenues (net to centre) growing at just 12 per cent compared to around 23 per cent in FY03 and a decline of 4.1 per cent in non-tax revenues. Also overall growth in receipts is expected to be at 8.6 per cent from 11.5 per cent in FY03.

The finance ministry expects the growth in overall expenditure to be lower at 8.6 per cent from 11.5 per cent in FY03. This is based on an estimate of 7.2 growth in total revenue expenditure from 13.3 per cent in the previous year. Although overall capital expenditure is expected to grow at a healthy rate of 16.4 per cent in the budget estimates for FY04 compared to just 2.5 per cent growth in FY03 revised estimates.

Fiscal deficit higher despite check on capital expenditure
The government tried to keep the fiscal deficit under check by controlling the growth of overall expenditure at 11.5 per cent against the budgeted estimate of 13.2 per cent for FY03. This was made possible by control on capital expenditure, which grew by just 2.5 per cent against the budget estimate of 14.8 per cent. Non-plan expenditure on capital account declined by 1.7 per cent against the budget target of 25 per cent and plan expenditure on capital account showed a 4.8 per cent growth compared to the budgeted growth of 9.2 per cent. Interest payments have also grown by 7.6 per cent against the expected 9.2 per cent.

Higher revenue deficit
Revenue deficit was higher at 4.3 per cent of GDP against the budget target of 3.8 per cent. This resulted from revenue expenditure growing at a higher rate of 13.3 per cent against the targeted 12.9 per cent for FY03 and revenue receipts growing at a lower rate of 17.6 per cent against the budget target of 21.7 per cent.

Lower GDP
Despite all the efforts, the fiscal deficit, at 5.9 per cent of GDP, was higher than the budgeted target of 5.3 per cent, although lower than the 6.1 per cent of GDP in FY02. In addition to other factors, this also resulted from lower than expected GDP growth in FY03. The growth in GDP in FY03 is expected to be poorer than expected because of a decline of 3.1 per cent in agriculture and allied sectors.

Arbitrary numbers
The fiscal deficit estimate for FY04 is 5.6 per cent of GDP. Nominal GDP calculated on this basis shows a year-on-year growth of 11.3 per cent. Taking the deflator (inflation for all components of GDP) at around 3 per cent for next year, the real GDP value comes to 8.3 per cent, which is not possible. Also, the growth rate for nominal GDP in FY03 comes to 6.5 per cent. Taking the deflator at 3.5 per cent, the real GDP growth comes to 3 per cent, which is too low. This definitely points to the fact that the fiscal deficit numbers are arbitrary. This has happened quite often in the past and final fiscal deficit numbers for the past fiscal year have been higher than those the finance minister had projected on budget day.

(In Rs. crore)	2001-2002 actuals	2002-2003 budget estimates	2002-2003 revised estimates	2003-2004 budget estimates
1. Revenue receipts	201449	245105	236936	253935
% y-o-y growth		21.7	17.6	7.2
2. Tax revenue (net to centre)	133662	172965	164177	184169
% y-o-y growth		29.4	22.8	12.2
3. Non-tax revenue	67787	72140	72759	69766
% y-o-y growth		6.4	7.3	-4.1
4. Capital receipts (5+6+7)	161004	165204	167077	184860
% y-o-y growth		2.6	3.8	10.6
5. Recoveries of loans	16403	17680	18251	18023
% y-o-y growth		7.8	11.3	-1.2
6. Other receipts	3646	12000	3360	13200
% y-o-y growth		229.1	-7.8	292.9
7. Borrowings and other liabilities	140955	135524	145466	153637
% y-o-y growth		-3.9	3.2	5.6
8. Total receipts (1+4)	362453	410309	404013	438795
% y-o-y growth		13.2	11.5	8.6
9. Non-plan expenditure	261259	296809	289924	317821
% y-o-y growth		13.6	11.0	9.6
10. On revenue account, of which	239954	270169	268979	289384
% y-o-y growth		12.6	12.1	7.6
11. Interest payments	107460	117390	115663	123223
% y-o-y growth		9.2	7.6	6.5
12. On capital account	21305	26640	20945	28437
% y-o-y growth		25.0	-1.7	35.8
13. Plan expenditure	101194	113500	114089	120974
% y-o-y growth		12.2	12.7	6.0
14. On revenue account	61657	70313	72669	76843
% y-o-y growth		14.0	17.9	5.7
15. On capital account	39537	43187	41420	44131
% y-o-y growth		9.2	4.8	6.5
16. Total expenditure (9+13)	362453	410309	404013	438795
% y-o-y growth		13.2	11.5	8.6
17. Revenue expenditure (10+14)	301611	340482	341648	366227
% y-o-y growth		12.9	13.3	7.2
18. Capital expenditure (12+15)	60842	69827	62365	72568
% y-o-y growth		14.8	2.5	16.4
19. Revenue deficit (17-1)	100162	95377	104712	112292
% of GDP	-4.3	-3.8	-4.3	-4.1
20. Fiscal deficit {16-(1+5+6)}	140955*	135524	145466	153637
% of GDP	-6.1	-5.3	-5.9	-5.6
21. Primary deficit (20-11)	33495	18134	29803	30414
% of GDP	-1.5	-0.7	-1.2	-1.1
Implied nominal GDP	2310738	2557057	2465525	2743464
% y-o-y growth		10.7	6.7	11.3
Note: * Based on provisional actuals for 2001-2002