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Dip in fiscal deficit a mirage?

Hema Ramakrishnan

NEW DELHI, Aug. 2

THE 25 per cent decline in fiscal deficit during the first quarter of the current fiscal, primarily due to lower interest payments, may not really be a pointer to prudent fiscal management.

The sharp fall in interest payments has come about due to a host of factors - including changes in the accounting procedure with regard to interest payments and a hefty Rs. 5,243 crores outgo from the Consolidated Fund to the Public Account in June due t o a classification error. Officials said that the trends in interest payments during the first quarter will be rectified during the course of the year.

Interests payments during the first quarter ending June touched Rs. 14,241 crores as compared to Rs. 17,326 crores in the same period last year, registering a decline of 17.3 percent. Significantly, interest payments in June were negative (Rs. -20 crores ) against Rs. 5,261 crores in June, last year.

Lower interest payments were partly due to a change in accounting procedures from this year - wherein interest receipts, incidental to market borrowings, are netted against interest payments. This adjustment amounted roughly to over Rs. 2,000 crores fro m April to June, this year.

More importantly, an amount of Rs. 5,243 crores was moved out of the interest payment head (from the Consolidated Fund) to the Public Account in June. The adjustment had to be done to rectify a classification error.

Hence, gross interest payments during April to June 2000, which stood at around Rs. 21,000 crores, was lower at Rs. 14,241 crores after these adjustments were made.

Month-wise figures indicate that net interest payments in June stood at Rs. 5,223 crores. With Rs. 5,243 crores credited to the public account, interest payments stood negative at Rs. -20 crores.

Officials said that these adjustments would get rectified in the coming months and interest payments are likely to remain at the budgeted levels, this fiscal. Any cut-back in the non-plan expenditure can come only from reduction in subsidies or defence s pending.

The Government has budgeted interest payments for fiscal 2000-01 at Rs. 1,01,266 crores as against Rs. 88,000 crores in the budget estimate for 1999-2000. The outgo on interest payments in the first quarter ending June amounted to 14.1 percent of the bud get estimate.

Apart from lower interest outgo, the reduction in fiscal deficit during the first quarter as compared to the corresponding period last year is also on account of a spurt in revenue receipts, both non-tax and tax revenues.

Non-tax revenues were on the rise from May since several public sector companies - on the lines of private companies - paid up interim dividends, following the decision in the Union Budget for 2000-01 to hike dividend tax from 10 to 20 per cent. It stood at Rs. 7,897 crores as against Rs. 5,200 crores, clocking a 52 percent jump.

Tax collections (net) grew by around 19.6 percent to touch Rs. 22,452 crores during April to June as against Rs. 18,767 crores in the corresponding period, last year.

Officials reckon that a sustained increase in revenue receipts may aid in containing fiscal deficit at the targeted level of 5.1 per cent of the Gross Domestic Product.