The Union government was absolutely right when it said that an early presentation of the budget would allow ministries to start spending as soon as the fiscal year started. Data shows that the central government was able to give a big fiscal boost to the economy in the first two months of fiscal year 2017-18 .

During April-May this year, total central government expenditure was Rs4.59 trillion, higher by 54% from the same period last year. In sharp contrast, the rate of increase in government spending was a mere 13% year-on-year in April-May 2016. In fact, government spending had contracted in the first two months of 2015-16 from a year ago. Even in April-May 2014, when spending went up 28% probably due to the general elections, the rate of increase was much lower than in the current fiscal year. In April-May this year, the government has spent more than a fifth of the amount allocated for the entire fiscal year.

Moreover, the quality of government spending this year too has been good, with capital expenditure (capex) rising by 58% in April-May from a year ago. In April-May 2016, in contrast, government capex had actually shrunk.

The upshot of all that extra spending at the beginning of the fiscal year has been a steep rise in the fiscal deficit. The fiscal deficit in April-May this year is Rs3.73 trillion, which is up 63% compared to a year ago. It’s 68.3% of the targeted fiscal deficit for the entire fiscal year.

With the private sector unlikely to do well in the first quarter of 2017-18 due to the initial disruption caused by the introduction of the goods and services tax and with widespread reports of rural distress, gross domestic product growth during the quarter will, of necessity, have to be supported by government spending. The government seems to have realized that. This is particularly true of capex, where the private sector has not yet stepped up its investments.

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