Move to push this year’s expenditure to next fiscal is intended to keep the fiscal deficit within target

The Finance Minister of the next government post-elections will have to pay the price for the United Progressive Alliance’s (UPA) subsidy and social spend. The Finance Ministry plans to book in next financial year, 2014-15, the expenditure that will be incurred on subsidies during the remaining months of the current fiscal (January-March).

Pushing this year’s expenditure to the next fiscal’s accounts will keep the fiscal deficit for 2013-14 within the target of 4.8 per cent of gross domestic product (GDP) — at least on paper.

Highly-placed sources told The Hindu that this ‘convenient accounting’ will ‘artificially’ limit the fiscal deficit this year but make it a headache for the next Finance Minister who will have to raise the resources needed to foot the bill for the fuel, food and fertilizer subsidies for January-March, 2013. The Budget Estimates (BE) for 2013-14 for these subsidies is Rs.2.21 lakh crore. The Finance Ministry has not so far raised before Parliament a demand for additional grants for these subsidies. However, as per latest official data, at the end of November, 2013, the fiscal deficit was already 94 per cent of the BE for 2013-14. With four months still to go in the current fiscal year, the Finance Ministry has limited space to manage the fiscal deficit, the excess of the government’s expenditure over its income. The UPA Government has not been able to garner through disinvestments the Rs.40,000 crore projected in the Union Budget. Moreover, tax collections are growing at a rate less than the target of 19 per cent. Union Finance Minister P. Chidambaram has pressed in budget cuts in social schemes in an election year to keep the fiscal deficit below 4.8 per cent but they are not going to be enough.

To make up for these cuts, the Finance Ministry has also sought from the big-spend ministries, including those for rural development, roads and health, estimates of expenditures that could be booked in the month of April.

Mr. Chidambaram has said that the UPA Government will not let the India’s fiscal deficit for 2013-14 breach the 4.8-per cent target. International rating agencies have warned that a slip-up will trigger a rating downgrade for India.

Senior Finance Ministry officials confirmed to The Hindu: “The subsidy bill of the last quarter of 2013-14 will be accounted for in the month of April so it will reflect in the expenditure for the next financial year or 2014-15.” They added that it was not unusual for the Finance Ministry to roll over expenditure from one financial year to the next.

Clarification

C. K. Ramaswamy, Under Secretary, Ministry of Finance, Government of India, writes:

The basis of the report published on January 10, 2014 headlined “Convenient accounting of subsidies to hit new government” is wrong. Subsidies for food, fertilizer and fuel, as provided in the Budget, have been or will be disbursed during the current financial year to the FCI, fertilizer companies and oil marketing companies. No part of the subsidy bill will be rolled over to the next financial year.

It is a longstanding practice of the government to pay the subsidy for fuel for the fourth quarter in the first quarter of the succeeding year. The subsidy for Q4 of 2012-13 was paid in Q1 of 2013-14. Similarly, the subsidy for Q4 2013-14 will be paid in Q1 of 2014-15.

As far as a financial year is concerned, subsidy for four quarters will be disbursed during the year. In the case of the FCI, part of the food subsidy for a financial year is released only after audit of accounts. The same practice will be followed this year. Hence, the report that financial accounting is being done in a manner that will hit the new government is baseless.

Puja Mehra's reply

The rejoinder does not contradict the story. I have mentioned in the closing para of the story: “Senior Finance Ministry officials confirmed to The Hindu: “The subsidy bill of the last quarter of 2013-14 will be accounted for in the month of April so it will reflect in the expenditure for the next financial year or 2014-15.”

“They added that it was not unusual for the Finance Ministry to roll over expenditure from one financial year to the next.”

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