Despite the much hyped improvement in corporate tax receipts, the first four months of the fiscal year (April to July) have actually seen a near 40% year-on-year deterioration in the central government’s budget deficit. Dramatic falls in customs and excise duties have left total revenues down about 10% year-on-year, while government spending has risen by 13% despite the several PSU IPO disinvestments.
The shortfall of revenues over expenditure peaked in the three months to January, when it was running at an annualised rate of nearly 10% of GDP (remember this figure excludes the state governments’ deficit). There are plenty of upward pressures on spending in the form of a rising subsidy bill, possible further support to drought-hit farmers and the second instalment of the public sector pay hike recommended by the Pay Commission (40% came in 2008, with 60% still left to be paid). The pay rise is likely to come in October and is worth roughly 0.5% of GDP to the deficit.
Thus the central government budget deficit forecast to 6.9% of GDP with the general government shortfall at 11.2%.