NEW DELHI: The government has set a fast pace for Plan spending at the start of the new financial year, consistent with its strategy of high public capital spending to give a leg up to investments and the economy.

Data released on Thursday showed the government has completed 16.5% of its budgeted Plan spending by the end of May, higher than 13.3% at the same point last year. The high speed spending has, however, dented fiscal deficit that was placed at 42.9% of the budget at end of May compared with 37.5% at the same time last year.

The fiscal deficit tends to be higher in initial months as revenues take time to pick up, leaving the government to fund chunk of spending through borrowings. The deficit figures start to improve after June when first installment of corporate tax payment comes in. The government in the budget pegged fiscal deficit at 3.5% of GDP, which could be a tough challenge if revenues do not come up to budgeted amount.

On Wednesday, the government accepted Seventh Pay Commission proposals, which will cost Rs 61,000 crore. Government’s revenues were 4.8% of the budget amount at the end of May, almost same as 4.6% last year. Total spending was 15.1% of budget estimates compared with 14.8% last year. Within the overall spending, 13.5% of capital spending had been completed by May slightly lower than 15.6% at the same time last year.

“The 3.5% is a stiff target, a significant reduction from last year. To avoid a situation where it is met by cutting capex, efforts should be intensified on divestment and spectrum auction — the two areas where not much activity has happened,” said DK Joshi, chief economist at Crisil.