Headroom for fiscal deficit

Plenty of excellent analysis was written by analysts from the domestic and foreign institutions on Thursday about the stiff target finance minister P Chidambaram has set for himself in fiscal 2013-14 to reach 4.8 per cent of the GDP. Most of the analysis is based on two premise, that the subsidy reduction target even at 11 per cent is way too little and even that is difficult as the pas through from the petroleum products has not been fully made operational. The second is that since the other numbers like interest payments, wages and pension and defence current expenditure is rigid the ministry is essentially flying on the equivalent of a wing and a prayer.

These observations are accurate. But what they do not factor in is the degree of flexibility the government of India budget still offers to finance ministers even now to cut corners. This is rapidly eroding with each passing year but is there still to be harnessed as of now.

First,on the subsidy issue. Even if Chidambaram is not able to whittle down the impact of the major subsidies fully, he is left adrift by about Rs 29,000 crore. This is not too big a chasm to cross for a determined team. But the second option is more interesting. The finance minister has made his intentions clear to cut down the number of centrally sponsored schemes from the current 173 to 70. He has not set a time line for it and that is a wise move, as this can be a tough battle to fight.

Yet these schemes together will account for Rs 1,43,039 crore from the central government budget in 2013-14. The sum is almost 35 per cent more than the allocation under the revised estimates for this fiscal. Without any pruning any of these schemes the actual allocation for 2012-13 has come down from the budget estimates by a similar amount of Rs 27,297 crore.

... contd.

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