In an update titled Mid Year Review of Government Finances 2018-19, the RBI noted that while centre’s fiscal position has deteriorated in H1 2018-19 vis-à-vis last year, states have shown a reasonably fair performance so far. Nevertheless, capital expenditure has not been compromised which augurs well for economic growth. Going forward, growth impulse through high expenditure is likely to come from states, while for the centre the fiscal performance will hinge upon revenue mobilization.

Revenue expenditure for the union government after growing aggressively in 2017-18, has grown at a modest pace this fiscal. During H1 revenue expenditure (as per cent to BE) was marginally lower than last year, primarily due to lower subsidy payout (as per cent to BE) among major subsidies except petroleum. Taking into account the performance upto October 2018, subsidy payout has been lower due to lower food subsidy payout as per cent to BE, while fertiliser and petroleum subsidies have been higher. Revenue expenditure of states in 2018-19:H1 was at 39.9% to BE. Among committed expenditures, interest payments were lower than H1 of previous year.

This mid-year analysis provides a preliminary assessment of fiscal outcomes ahead of the interim budget by the centre on February 01, 2019. With its GFD during April-October 2018-19 at Rs 6.5 trillion (103.9% of the BE) as against the budgeted amount of Rs 6.2 trillion, appropriate balancing to meet the targets set in the beginning of this year should be the key focus for the rest of the year. On the revenue side, an area of concern has been that GST collections are lagging behind targets.

Going forward, however, lower prices (on account of GST rate cuts) and a higher compliance should reflect in higher GST revenues. On the expenditure side, the hike in minimum support prices (MSP), along with the increase in budget provisions for procurement by Rs 150.5 billion and Rs 100 billion by centre and four states (Uttar Pradesh, Haryana, Rajasthan and Telangana), respectively, will likely impose upside pressures, although the stress on union excise duties and petroleum subsidies might dissipate with the recent softening of crude oil prices and strengthening of the rupee. Notwithstanding these concerns, capital expenditure has not been compromised which augurs well for future growth.