The reforms over the past ten months -- be it notification for the FRBM Act, approval for VAT, widening of tax base or phased withdrawal of tax exemptions -- were all indicative of the government's initiative to curb deficits (revenue and fiscal).
However, the economic survey released today contradicts this notion. Despite projections of a 6.9% growth in GDP for 2005-06, the economic survey 2004-05 fails to substantiate as how and when the government will garner resources to meet the requisite expenditure budgets.
As against 9mFY04 (April-December 2003), when the revenues garnered were 108% of the budgeted figures, in 9mFY05 they have fallen short to the extent of 22%.
While the budgeted estimates for revenue deficit (as a % of fiscal deficit) have drastically fallen to 55% as against 78% (FY04-Provisional) the same does not seem to be feasible in the current scenario.
However, the fiscal deficit figures are expected to continue the declining (improving) trend and account for 4.4% of GDP as against 4.6% last year.
Revenue came from. . .
Lower receipts. . .
Rising interest payments, expenditure on subsidies, pay and allowances, and pensions coupled with a near stagnant tax-GDP ratio (30% at present) have mainly contributed to the worsening of the revenue deficit. While the revenue receipts swelled by 11%, the capital receipts witnessed a decline of 5% over the previous year. But what is heartening is to note that the non-debt receipts are higher than the FRBM benchmark of 40% of the budgeted estimates. Revenue realised from corporate income tax, excise and service tax during 9mFY05 as a % of what was budgeted, was lower as compared to the realisations in the corresponding period last year despite strong 9 month results posted by India Inc. Non tax revenue during the same period declined by 8.7% mainly reflecting lower interest and dividend receipts.
Revenue spent on. . .
And lower outlay. . .
A welcome change on the expenditure side is the low escalation in non-plan Targeting FRBM requirements. . . Outlook
Historical public sector outlay
The historical figures for public sector outlays outline the fact that the government has shifted focus to education and health expenditure over the last few years. A timely collection and dispensation of the revenues in the said areas will definitely augur well for the country's economic targets.
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Rs bn
2004-05BE
9mFY04
9mFY05
% change
% of budgeted for 2005
Total Revenue Receipts
3,093
1,705
1,884
10.5%
60.9%
-Tax Revenues
2339
1,188
1,412
18.9%
60.4%
-Non Tax Revenues
754
517
472
-8.7%
62.6%
Total Capital Receipts
1,685
1,458
1,383
-5.1%
82.1%
-Recovery of loans
271
519
452
-12.9%
166.8%
-Other receipts
40
15
29
93.3%
72.5%
-Borrowings
1374
924
902
-2.4%
65.6%
Total Receipts
4,778
3,163
3,267
3.3%
68.4%
Rs bn
2004-05BE
9mFY04
9mFY05
% change
% of budgeted for 2005
Non Plan Expenditure
3,322
2,396
2,456
2.5%
73.9%
a) Revenue Account
2,937
1,945
1,982
1.9%
67.5%
-Interest Payment
1,295
785
799
1.8%
61.7%
-Major Subsidies
420
375
323
-13.9%
76.9%
-Pensions
159
106
125
17.9%
78.6%
-Others
1,063
679
735
8.2%
69.1%
b) Capital Account
385
451
474
5.1%
123.1%
Plan Expenditure
1,455
766
812
6.0%
55.8%
a) Revenue Account
918
490
532
8.6%
58.0%
b) Capital Account
537
276
280
1.4%
52.1%
Total Expenditure
4,777
3,162
3,268
3.4%
68.4%
While the focus remains on curbing the fiscal deficit, which should be eliminated by FY08, as per the FRBM Act, the means for doing the same do not seem to be sustainable. Although the budgeted estimates for fiscal deficit (as a % of GDP) have reduced by 20 basis points to 4.4% from 4.6%, the deficit financing has been mainly through the recovery of loans (on the capital side) and non tax revenues (on the revenue side), both of which hold no certainty in future.
The government's inability to meet the budgeted targets for garnering revenues accentuates the fact that besides extending the tax base and tapping potential taxpayers, the government should also focus on timely 'collection' of the same so that the budgeted outlays are not delayed. This is not only necessary for achieving our GDP targets but also to offer tax sops to the requisite areas.
Source: RBI
(Rs bn)
Agriculture
Rural devpmt
Energy
Industries
Transport
Education*
Health #
1985-86
18.2
26.7
96.8
49.1
40.7
8.7
5.8
1992-93
42.1
63.7
20.2
64.4
106.6
28.8
12.1
1998-99
76.9
121.6
355.7
79.7
203.4
96.8
155.7
2001-02
85.4
146.7
433.2
95.7
416.9
131.4
162.5
2002-03
37.3
64.2
363.1
79.9
320.4
69.1
84.1
* includes sports, art and culture
# includes water supply and sanitation