Posts tagged ‘Plan Expenditure’

FY15 Borrowing and Fiscal Estimates


I am working with a gross borrowing of ~6.50tn. However note that I haven’t considered cash balance which government will carry next year. Cash balance may range anywhere between 400-550bn. Hence gross borrowing then, excluding cash balance, should come down to 5.95-6.1tn.

Gilts of ~1.68tn will mature in FY15. Incorporating redemptions, net borrowing should come at around 4.8tn. Conventionally RBI raises 90% of its net borrowing via Gsec. Hence total net Gsec supply could come at around 4.3-4.4tn considerably low vs. 4.69tn of net borrowing in FY14

Note – I haven’t incorporated switch effect anywhere above. If government, which had already bought ~120bn of FY15 debt, switches ~200bn by FY14 end then above figure of 4.3-4.4tn for net supply should fall by similar amount i.e. 200bn to 4.1-4.2tn.

I would add duration at current levels however on an incremental basis with a minimum 2 year horizon.

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Fiscal Multipliers for India – Sukanya & Bhanumurthy

Good piece from professors of NIPFP. Fiscal multiplier gives one an idea about how government spending/revenue impacts the final output of the economy. India’s growth has tumbled to a decade low due to a number of reasons. Faltering growth has only exacerbated government’s concern with regard to fiscal deficit. Authors in the paper present a framework for the estimation of fiscal multipliers.


Accordingly they list down below numbers after their assessment:


Capital Expenditure Multiplier: 2.45

Other Revenue Expenditure Multiplier: 0.98


Corporate Tax Multiplier: -1.02

Every 100rs increase in capital expenditure will boost country’s GDP by Rs.245. Similarly for every rise in Rs.100 via direct tax collection GDP falls by Rs.102.

Not listing transmission mechanism (in the paper) but one should read it.

They conclude

Despite policy targets that have sought to raise the capital expenditure by the government, allocation for capital account expenditure continues to be a residual expenditure as observed in recent budgetary exercises. The high value of the estimated capital expenditure multiplier points to a high multiplier effect of capital expenditure on output, and underscores the need to prioritize capital expenditure.

Government is widely expected trim its plan expenditure in addition to payment delays and other stuff to limit its deficit number at 4.8% of GDP. Plan expenditure has two components – Capital and Revenue expenditure. In the previous year FM saved heavily on plan expenditure (primarily on revenue expenditure). Among other ministries rural is the one which is expected to take a big hit on its budgeted amount. Last year government set aside ~763bn for Ministry of Rural Development out of which they were allowed to spend only ~550bn on the back of last minute austerity. This year budgeted amount of the ministry was set at ~801bn. Let’s see how situation pans out this time. If post monsoon harvest falls out of line then probably a double whammy for rural population.

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Central Govt. Revenue & Expenditure Statement (12-13E)

  • Government Expenditure is divided into Plan and Non-Plan expenditure. Non-plan does not mean that the expenditure is unplanned.
  • ‘Plan’ in this context indicates what is covered in the Five-Year Plan. Non-Plan expenditure covers defence expenditure, interest payments and subsidies and grants to states. It can be divided into revenue account and capital account. Revenue account is, simply, expenditure that gets consumed and Capital Account is one that creates some productive assets.
  • Defence personnel salaries, interest payments and subsidies would come under Non-Plan revenue expenditure
  • Plan expenditure can again be split into revenue and capital components. Needless to say, a majority of the money is spent on revenue expenditure, i.e. salaries, overheads and other stuff, which does very little for the development of the economy.
  • The central government funds its expenditure mainly through taxes – income tax, corporate tax, excise and custom duties.
  • Its non-tax revenue come from interest received and surpluses of PSUs, financial institutions and other departmental undertakings like the railways, Post, etc.
  • Recoveries of loans from states (and others) and the government borrowings make up the capital receipts of the government.
  • In calculating the fiscal deficit, government borrowings are not included on the revenue side of the budget. It is therefore the cash by which the government is short to cover the proposed expenditure.
  • The target for fiscal deficit is set as a percentage of GDP. Also, most of the revenue numbers depend on the GDP growth. This time it is expected to be 5.1% of GDP possibly seeing GDP at Rs.101.59trillion.

I would appreciate your input if I am wrong somewhere.

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