14th Finance Commission report: Will centre go for capital expenditure push?

The 14th finance commission report has come out with estimates of the finances of the central government for the coming five years. Accepting the recommendations of the commission, which government says it will, the centre will be left with less while states have a greater share of tax revenues in their pocket.

Game of numbers

Game of numbers

The report says that the net revenue for the centre will be Rs. 12.05 trillion in 2015-16. This comes out to be a measly increase of 2.6 percent over the current fiscal year (2014-15).

Proviso centre has to live with a cut, revenue expenditure needs a trim and the latter only grows by 0.78 per cent in 2015-16 as per the number released by financial commission.

What does revenue expenditure consists of?

A substantial proportion of government’s revenue expenditure comprises of salaries and wages, pensions, interest payments and defence expenditure. Even social services could face a cut. Already social services are projected to grow by just 2 per cent.

Subsidies get cut

As per finance commission, total subsidies get a 4.7 percent cut from the fiscal year 204-15. But, very astonishingly, food subsidy gets a 15 per cent slice. Nevertheless, growth in other subsidies, mainly petroleum and fertilizers see 3.35 per cent growth.

Capex gets push

A debate is ongoing over the topic whether fiscal deficit number should be allowed to get breached or should be contained nowadays. Considering that fact by limiting revenue expenditure, centre has enough in kitty to push capital expenditure (capex). Even sizable chunk of economists inside financial commission and finance ministry are of the view that capex should be increased at a cost of fiscal loosening. 14th Finance commission projects a fiscal deficit of 3.6% of gross domestic product in 2014-15.

Capex is projected to grow at just 6 percent. As per these numbers, centre may feel the heat to push investment.
Gross tax revenue comes out to be 14.87 per cent as per finance commission over the running year, and the estimate for nominal economic output comes out to be 13.5 per cent.

Where will additional tax revenue come from?

A tough question but if projections by commission are to be believed boost to tax revenues will come from corporation tax (projected rise 17.15 percent – fastest in last five years) and income taxes.

Ashish Pandey

I am a business and finance journalist who is currently employed at Financial Express and previously at Zee News. My areas of interest include business and foreign policy. You can reach me on Twitter at @ashuvirgo1984 or @eFundsPlus.

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