FinMin likley to cut expenditure by 19%

The government is all set to tighten its belt and take a massive expenditure cut. Sources in the finance ministry told CNBC-TV18 that a 19% cut in the budgeted expenditure this fiscal could be on the cards.

Tax collections may be tepid and divestment drive is showing little progress and revenue from spectrum sale is also likely to be below estimates. Therefore, all of this has forced the finance ministry to take the scissors out and cut the budgeted expenditure.

In September itself CNBC-TV18 had reported that there would have to be massive cuts in planned expenditure. However, the magnitude of the cut is likely to be 20 percent of the planned expenditure at Rs 1.1 lakh crore.

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The reason for such a huge expenditure cut is because tax collections are likely to fall short of target. Indirect tax collections are only 54 percent of the moving target uptill November 30 that is Rs 41,000 crore short just uptill November and half the fiscal is still left.

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Aakansha Sethi

Reporter|CNBC-TV18

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Excise collections for instance have declined 5.1 percent in the period from April to November year-on-year (YoY) because of the slowdown in manufacturing. Even on direct taxes you have seen a growth of about 13 percent compared to the projected growth rate of 19 percent. Therefore, there is likely to be an overall shortfall in tax collections of about Rs 40,000-50,000 crore.

Moreover, on disinvestment front too one is likely to see a major shortfall. The target was Rs 54,000 crore but the government is not expecting more than Rs 20,000 crore. On spectrum as well they may fall slightly short of that Rs 40,000 crore mark.

On oil subsidies front, while they are going to rollover the fourth quarter subsidies to the next year, for the third quarter itself you are going to have Rs 8000-9000 crore of subsidy that will be given to oil marketing companies (OMCs). Most of that budgeted amount was already given for the last quarter of the last fiscal.

Therefore, in order to fulfill all these gaps one is likely to see huge planned expenditure cuts even though they come in a year leading up to the elections.