Is Government bending rules to keep its balance sheet clean?

In his budget speech, the finance minister had reaffirmed the commitment of the Government to contain fiscal deficit. He stated that the fiscal deficit would be restricted to 4.6% of GDP in the current fiscal. But what he probably did not tell citizens were means for containing the deficit number. In simple terms, fiscal deficit is nothing but excess expenditure of the Government over and above its revenue. Considering underachievement in tax collection and nearly 16% rise in expenditure estimated at the beginning of the fiscal year 2013-14; it seems the actual fiscal deficit number may overshoot not only 4.6% mark but also the initial target of 4.8%.

However, the Government applied various tactics to curb the deficit which include; 

• Rolling over subsidy payments of fertiliser and oil marketing companies to next fiscal
• Delaying the payment of export duty refunds
• Holding over income tax refund payments
• Putting pressure on Public Sector Undertakings (PSU) for declaration of generous dividends

There has been a new addition to the list above. Recently, the finance ministry asked banks to deposit Tax Deduction at Source (TDS) by 31/3/2014  a month prior to the usual deadline. Banks deposit TDS deducted on salary, rent and interest payment to the Government. As per Income tax rules, banks are allowed to deposit TDS by 30/4  every year. Bankers are of the view that advisory of the finance ministry has been conflicting with the income tax rules. 

We are of the view that, attempts of the Government to compress the fiscal deficit number would make a job of the new government tougher. Managing fiscal deficit would be a herculean task. We also believe that, RBI would consider level of fiscal deficit before taking any call on policy rates. Further, global rating agencies would also track the fiscal deficit number.