Fiscal trends: deviating from target

Jaswant Singh in his maiden budget has missed the fiscal deficit target like most of his predecessors. But the most serious thing this time is that the fiscal deficit as a per cent of GDP stands at 5.9 per cent. Although marginally lower than the previous year, it is very high by any standards.

The last time that the fiscal deficit target was met was by the then finance minister, the initiator of financial reforms, Dr. Manmohan Singh. The years that followed even he too missed the fiscal deficit targets by big margins (see table below).

The present fiscal trends are worrisome on two accounts, one, the fiscal deficit has been higher in a year of good revenues for the government and secondly the government has checked capital expenditure to keep the deficit at this level.

The cause of the first can be blamed on lower GDP growth on account of poor growth in agriculture. The second, checking capital expenditure, is more serious. Capital expenditure adds to growth in the economy. Despite this the government had to curb it. This means that the other part of expenditure, revenue expenditure is very rigid and the government is in no position to curb it. This expenditure basically constitutes salaries and wages of government employees and seeing the election clouds on the horizon the government was in no mood to enrage them.

This trend does not augur well for the economy. The finance ministry's plan for job cuts in central ministries has also not produced any specific results other than making a list of surplus people (which has never been made public) and shifting people from one ministry to another.

This year we will console ourselves that it is a crucial year for elections in different states and politicians cannot be expected to take bold steps now. Next year there will be national elections and more such things will follow. For politicians it will become something like ' who will bell the cat'.

The other side of the coin is the masses, more interested in what benefits in the short term and are not aware of the long term consequences. When they feel the negative impact of some wrong step taken in the past do they realise the need for change, by that time the reform becomes less effective and more radical reforms are required, which in most cases come along with more pain of transition for everyone. The solution lies in educating the masses on these issues. Very few democracies have this system in place and there is no other alternative to it. Kelkar committee reports were the first step in this direction. But unfortunately either the masses did not grasp it or remained silent spectators and political considerations stalled it.

The class of policy education has just begun. Lets hope for the best.

	Budget estimates (Rs bn)	Actual (Rs bn)	Actual as % of budget estimates
FY91	367.95	446.32	121.30
FY92	377.27	363.25	96.30
FY93	344.08	401.73	166.80
FY94	369.59	602.57	163.00
FY95	549.15	577.03	105.10
FY96	576.34	602.43	104.50
FY97	622.66	667.33	107.20
FY98	654.54	889.37	135.90
FY99	910.25	1133.48	124.50
FY00	799.55	1047.16	133.50
FY01	1112.75	1188.16	106.78
FY02	1163.14	1409.55	121.18
FY03	1355.25	1454.56	107.33
Source: Budget papers