Fiscal deficit control coming at the cost of lower productive spending: Crisil

The global rating agency, Crisil in a report has stated that a huge cut in expenditure on the education and health sectors in fiscals 2013 and 2014, which enabled the finance minister P. Chidambaram to achieve the fiscal deficit target at 4.6% of GDP during 2013-14, has lowered productive spending. As per the rating agency, the government’s efforts to narrow fiscal deficit since last two years by expenditure cuts resulted in lower productive spending, a factor which the new government would find challenging to boost. Further, it also outlined that the cost of this compromise would be felt in the years to come, since the government’s productive spending will have a multiplier impact on the economy in subsequent years.  The report also stated that new government, which would take charge from coming month, would be first required to aim to reverse this trend and raise the government’s productive spending. The 13th Finance Commission had last year set a capital expenditure-to-GDP target of 4.5% by FY15. However, the report said the ratio for FY14 was 1.7 per cent and the same is budgeted for FY15. It further, added that even if revenue grants provided by the government for capital creation to the States were to be added to the Centre’s capital expenditure, the government’s total budgeted spending for productive purposes will only be 2.8 per cent in FY15. In interim budget 2014-15, Union Finance Minister P. Chidambaram pegged FY14 fiscal deficit would be at 4.6%, below the red line of 4.8% set in the beginning of the year.  It highlighted that in the previous two years, productive spending, which is capital expenditure and the revenue grants for capital creation in critical areas such as public infrastructure, education and health care, had below the than budgeted by nearly Rs. 1.8 trillion. In terms of per person spending, while the government spent an additional over Rs 1,900 per person on other expenditure over the last two financial years, it spent an incremental Rs 110 on productive spending.