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FM keeps his word on fiscal consolidation. But promises for next year will be more difficult to keep.

February 18, 2014 12:46 AM IST First published on: Feb 18, 2014 at 12:46 AM IST

FM keeps his word on fiscal consolidation. But promises for next year will be more difficult to keep.

Much before he sat down to write the interim budget speech and finalise the numbers, Union Finance Minister P. Chidambaram had committed himself to not breaching the red line on the fiscal deficit, set at 4.8 per cent of the gross domestic product when he presented Budget 2013-14. He kept his word.

Rather, he slashed expenditure to post a lower deficit number of 4.6 per cent of the GDP. He admitted to rolling over Rs 35,000 crore of fuel subsidies to the first quarter of the next financial year. Even if he had provided for this, however, the fiscal deficit would have touched 4.9 per cent of the GDP, only marginally higher than the budget estimate. This would still have been quite a feat, considering the pressures on him to shower benefits in an election year.

More predictably, Chidambaram turned his interim budget speech into a statement of the Congress-led UPA’s “achievements” during its two terms. But much of UPA 1’s good work has been washed away by its poor performance on the economic front in its second term. After the 2008 global economic crisis, though India managed well, it wasted the opportunity to consolidate over the next two years.

The finance minister has estimated a nominal growth rate of 13 per cent for 2014-15, making the assumption that the average annual inflation in the next financial year will be around 7 per cent. This means the economy, in real terms, will not grow more than 6 per cent in 2014-15. But Chidambaram has been ambitious in estimating a 19 per cent growth in gross tax receipts next year, particularly when he fell short of this year’s estimate by a whopping Rs 76,964 crore. Not just that, he also expects to rein in expenditure to project a fiscal deficit of 4.1 per cent of the GDP in 2014-15.

The numbers for the next financial year will raise eyebrows. This is particularly so because if the government is determined to revive growth and generate jobs, how can it do so without spending? It is pertinent to mention here that the Plan expenditure for 2014-15 is exactly the same as was budgeted for in 2013-14.

If he does return to present the full budget for 2014-15, Chidambaram will surely find a way to justify all his estimates. If he doesn’t, he would have provided the new government adequate fodder to blame him, and the UPA, for all the ills.