Even as the rest of the world welcomes the new year with celebrations, Prime Minister Narendra Modi’s men behind fiscal maths, led by trusted friend Arun Jaitley (pictured), probably enter what will be North Block’s toughest quarter in years.

India’s fiscal deficit in April-November, according to data released on December 31, stood at Rs 5.25 lakh-crore, an astounding 99 per cent of the full-year target of Rs 5.3 lakh-crore — with three months still left in the financial year.

During the corresponding period last year, the government’s fiscal deficit had stood at 93.9 per cent.

In the last quarter of 2014-15, therefore, Jaitley will inevitably have to enforce massive spending cuts, to meet the ambitious fiscal deficit target of 4.1 per cent of gross domestic product (GDP). As a member of the Opposition, Jaitley had last year criticised large spending cuts by the then finance minister, P Chidambaram.

Faced with a potential shortfall of Rs 1.05 lakh-crore in tax revenues, Jaitley will hope for disinvestment, spectrum sales and dividends from state-run companies to garner more funds than estimated in the Budget, as spending cuts alone might not be enough to meet the fiscal deficit target.

It, however, is easier said than done. With stake sale in only one company so far — in SAIL, which fetched about Rs 1,700 crore — the next two months are going to be crucial for the disinvestment department, which is looking to pare stakes in Coal India, NHPC, ONGC, and a host of smaller companies like Concor, REC and PFC.

As such, the planned Rs 15,000-crore residual stake sale in Hindustan Zinc and Balco, and the plan to raise Rs 6,500 crore by selling the government’s stake in private companies, held through the Special Undertaking of UTI (Suuti), are already off the table for this financial year.

As reported earlier, Jaitley might lean on state-owned companies, which are sitting on a Rs 2-lakh-crore cash pile, to pay the Centre higher dividends. But in doing so, he would be eschewing long-term investment gains for short-term fiscal comfort.

When state-run companies pay higher dividends to the Centre, it is usually at the cost of capital expenditure on new and existing investment. This move might not go down well with policy watchers, especially at a time when his hand-picked chief economic advisor, Arvind Subramanian, has made a case for increased public investment to spur future economic growth.

While the finance ministry has already instructed other central departments to effect a 10 per cent cut in non-Plan spending, excluding interest payment, repayment of debt, capital spending for defence, salaries, pensions and grants to states, there will likely be substantial cuts on Plan spending as well which, in turn, will affect centrally-sponsored schemes.

How he manages the widening fiscal gap in 2014-15 will go a long way in proving — or undermining — Modi’s pro-reform image in the years to come. After all, even rating agencies and investors see managing finances as part of reforms.