View from India: Government Deficits Mount

The government’s finances have all gone haywire. As per a leading business daily, as of the end of September 2008, the revenue deficit was at an eye-popping 142% of the entire year’s projection while the fiscal deficit stood at 77% of the budget estimate. What makes the scenario stark and gloomy is the fact that in the past five years, never before had the revenue deficit in proportion to the budgeted figure been higher.

The reasons for the same are manifold. Additional expenditure catering to the demands for grants, increased recourse to the floatation of oil and fertiliser bonds, the latter especially causing off-budget liabilities to bloat are expected to put considerable strain on the government’s finances.

While receipts in the form of tax collections have been buoyant, they have not been able to outdo expenditure which has also soared. The worrisome aspect is that the expenditure has largely been skewed towards revenue and capital expenditure has taken a backseat.

To put things into perspective,  while revenue expenditure accounted for nearly half of the budgeted figure for the entire year, the capital spending at 28% paled in comparison. This does not bode well for an economy where bad infrastructure has choked the potential of the country to log in strong growth in GDP.