The government ran up a fiscal deficit of 33% of the total budgeted for the entire 2013-14 fiscal in the first two months of the current fiscal as it loosened purse strings to boost growth after a sharp compression in expenditure in 2012-13. Fiscal deficit stood at Rs 1.8 lakh crore in April-May, 2013-14, according to the data released by the Controller General of Accounts (CGA) on Friday. Fiscal deficit in April-May 2012-13 was 27.6% of the budget estimate.
Sluggish revenues have also contributed to the fiscal deficit besides higher spend. The government’s receipts stood at 3.3% of the budget estimates in April-May, 2013-14 as against 5.5% in same period previous fiscal. Fiscal deficit in 2013-14 is pegged at Rs 5.42 lakh crore or 4.8% of GDP.
The government will not pursue a sharp contraction in spending like last financial year but without deviating from fiscal consolidation plan.
The finance ministry has already ruled out compression in expenditure this year and instructed ministries and departments to front load spending to spur growth that slipped to 5% in 2012-13. Chidambaram had said earlier, “Government will continue to urge ministries and departments to spend money allocated to them. In fact, I will be happy if they spend it early rather than put it to the second half of the year… Public spending, government spending will help the growth process”
A sharp reduction in expenditure had helped the government contain 2012-13 fiscal deficit at 4.89% of the GDP, lower than even the downwardly revised estimate of 5.2% of GDP presented in the Budget, but the compression hurt growth. The trend emerging from the early spending numbers in the financial year clearly indicates that the government is now looking to boost public expenditure especially from the plan side while keeping wasteful spending under check.
Plan expenditure in the first two months stood at 12.3% of the budget estimate of Rs 5.5 lakh crore while non-plan expenditure as against 8.6% in the last financial year. Non-plan expenditure stood at 13.4% of the budget estimate in the period under review, marginally lower than 15.1% of the budget estimate in April-May 2012-13.
India’s manufacturing sector activity remained broadly flat in June as new orders declined for the first time in over four years and power cuts and fragile economic conditions weighed on the sector’s performance, an HSBC survey said. The HSBC/Mark it purchasing managers index for the manufacturing industry stood at 50.3 in June, slightly higher than 50.1 in May. However, output witnessed a decline for the second consecutive month. A reading above 50 shows that the sector is expanding, while a reading below 50 shows that the output in the sector is contracting.
Manufacturing activity was broadly flat in June. Output continued to contract due to power shortages, albeit less so than last month, for the last two months, the index is barely managing to remain above the crucial 50 marks that divides growth from contraction, but has held above the mark for over four years now. The May PMI reading for the manufacturing sector was the lowest since March, 2009.
The survey further noted that economic conditions in India were fragile, resulting in lower demand. Moreover, there were also reports of increased competition for new work. During the month of June, the total new orders fell for the first time since March, 2009. Export business, however, rose at the sharpest rate since January as demand from key foreign clients strengthened.
Despite the moderate pace of growth, output prices picked up slightly and input prices rose more notably, partly in response to the depreciation of Rupee. On the price front, input cost inflation accelerated to the sharpest since February. But, inflation was, however, “modest” as competition for new work persisted and weighed on pricing power.
The rupee last week sank to an all-time low of 60.72 against dollar on heavy capital outflows and month-end dollar demand from importers. Meanwhile, June witnessed the fastest rise in employment since March. Manufacturers added to their workforce numbers in during the month considering the rising backlogs of work.
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