|HOME | MONEY | BUDGET 2000-2001|
|February 25, 2000||
India's fiscal report card
Presenting the third of the rediff.com-Dun & Bradstreet India special pre-Budget analysis series. This article examines the financial status of the government and what it portends for the Budget this year
In the previous Budget, the government had targeted a growth rate of 21 per cent in total tax revenues. With the economy expected to grow by at least 6 to 6.5 per cent, the targeted growth rate in tax revenues looked achievable initially. Though the latest figures for the period April 1999 to January 2000 show that total tax collections grew by 16.9 per cent to Rs 1,252.79 billion, tax growth is still below budgeted estimates. In fact, except for corporate tax, all other tax collections (though buoyant compared with last year) have fallen short of targeted growth.
Indirect tax collections may see only marginal shortfall
Indirect tax collections for the period April 1999 to January 2000 grew by 17.7 per cent to Rs 883.31 billion. Fortunately for the government, the shortfall in excise collections is only marginal so far and year-end collections are likely to be close to the Budget estimates. The shortfall in customs duty collection is also unlikely to be on the higher side.
This is because the substantial increase in international oil prices is having a positive effect on the customs duty collection. Moreover, non-oil imports are also likely to see an upward trend in the remaining months of 1999-00 due to seasonal factors.
Shortfall in income tax too likely to be on the lower side
Income tax collections have grown by only 19 per cent to Rs 165.9 billion till the end of January 2000 compared with the targeted growth of 25 per cent for the entire fiscal year. However, this gap is likely to become narrower by the year-end as a major portion of income tax gets collected in the fourth quarter. Hence, the shortfall, if any, should not be more than Rs 10bn
The real setback is on the divestment side
The government's ambitious plan to raise Rs 100 billion through divestment receipts has not borne fruit as only Rs 14 billion have been raised till date. The government almost dropped its plan of raising the targeted amount, despite booming global stock markets, after it came under strong criticism for selling its assets at very cheap prices. The inability to achieve divestment targets is expected to further add to slippages in the budgeted deficit to the tune of at least Rs 86 billion.
Expenditure side: A spurt in Non-Plan Expenditure
Non-Plan expenditure grew by 3 per cent till December 1999 compared to the 3 per cent decline budgeted for 1999-00 by the government. Due to the exclusion of loans to state governments from this accounting head, non-plan expenditure was expected to be lower during this fiscal year. The slippages have been largely due to higher than budgeted expenditure on the revenue account in defence expenditure, subsidies, interest payments etc. Interest payments have grown by 25 per cent till December 1999, overshooting the annual budgeted increase of 14 per cent.
Defence expenditure for the year 1999-2000 is also likely to exceed the budgeted amount substantially on account of the Kargil conflict. Also, going by past trends, the government is unlikely to stick to its budgeted subsidies and is likely to overshoot the targeted amount on this front as well. Hence, non-plan expenditure may exceed the budgeted amount by Rs 120 billion to Rs 130 billion.
Plan Expenditure -- little leeway for government
Plan expenditures have grown at lower rate of 17 per cent till December 1999 compared with 19 per cent growth witnessed in the corresponding period of last year. However, the growth rate is still much higher than the 13 per cent increase budgeted for 1999-2000. Despite this, the government is expected to stick to the budgeted estimates as there is very little leeway left to exceed the targeted amount.
Fiscal Deficit likely to be around Rs 989 billion in 1999-2000
Given the shortfall in divestment receipts and over-run of non-Plan expenditure, the revised estimates may see the fiscal deficit touching Rs 989 billion against the budgeted Rs 799 billion, a slippage of Rs 178 billion. Last year, GDP at current prices stood at Rs 17,767 billion (as per Budget estimates). Assuming a 6 per cent growth in the year 1999-2000, GDP is likely to touch Rs 18,833 billion by March 2000. Hence, the revised estimate is likely to place the fiscal deficit at 5.3 per cent of GDP.
What lies ahead?
This year has been yet another story of fiscal laxity with the government failing to achieve its fiscal objectives. It needs to be emphasised that sticking to targets laid down in the Union Budget should be the top priority of the government in 2000-01. Introduction of the Fiscal Responsibility Act would be a welcome first step in this direction.
The finance minister will be hard-pressed to ensure that the government's debt service burden does not continue its relentless northward march. Interest payments in the coming year would alone account for close to Rs 1,000 billion. The government must focus on generating a substantial surplus on the primary account. Unless this happens, it will be a close to impossible task to reduce the fiscal deficit.
Fiscal scenario: A snapshot
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