The Hindu Business Line : Slippage in revenue deficit target likely

For 2004-05, the Centre's revenue deficit has been budgeted at Rs 76,171 crore or 2.5 per cent of the country's gross domestic product (GDP), which is substantially below the corresponding revised figures of Rs 99,860 crore and 3.6 per cent for the previous fiscal.

"The cumulative impact of post-budget duty concessions and additional expenditure commitments could lead to some slippage in meeting the ambitious Budget target of reducing revenue deficit," the Finance Ministry has said in its Mid-Year Review statement tabled in Parliament today.

The Review has said that while it may not be possible to reduce the revenue deficit by 1.1 percentage points of GDP this fiscal as envisaged, the Centre would, however, be able to meet the minimum 0.5 percentage points annual reduction prescribed under the Fiscal Responsibility and Budget Management (FRBM) Rules.

Under the FRBM Act and the National Common Minimum Programme of the ruling dispensation, the Centre is committed to elimination of the revenue deficit by 2008-09. Accordingly, it has planned a fiscal correction path that is `front-loaded', i.e., envisaging huge reductions in revenue deficit in the initial years, beyond the prescribed minimum of 0.5 percentage points every year.

The revenue deficit of Rs 59,951 crore during April-September was 78.7 per cent of the budget estimate for 2004-05, which is considerably in excess of the 45 per cent benchmark set under the FRBM Rules. The main reason for this, the Review has said, was that the Centre's overall tax revenues have gone up by only 20 per cent during the first half, against the 25 per cent growth assumed in the Budget.

This, in turn, has been due to factors such as higher tax devolution to States and the delayed incorporation of tax proposals in the Budget. During April-September, States were given 42 per cent of their budgeted tax share, whereas the gross tax collections amounted to only 36 per cent of the budget estimate. The advance release of share in Central taxes to help States tide over their immediate ways and means difficulties resulted in excess devolution of Rs 5,235 crore and impacting the revenue deficit by the same amount. But this would get corrected in the second half.

Similarly, the revenues from the education cess, the enhanced service tax rate and increased coverage of services and the securities transaction tax started flowing to the exchequer only after the Finance Act was passed in August. The two special task forces for expediting collection of arrears of direct and indirect tax revenues, too, were constituted only on August 10 and 12, respectively. "Salutary effect of these (proposals) on revenue collections may, therefore, be discernable only in the second half," the Review has noted.

But on the expenditure front, the Centre has been able to reduce its outgo on subsidies from Rs 26,439 crore during April-September 2003 to Rs 21,995 crore. This has been due to a decline in food subsidy, brought about by lower grain stocks and consequent reduction in carrying cost. Further, subsidy on kerosene and domestic LPG has fallen "with a move away from an open-ended cost-plus subsidy structure and some delays in pre-audit of subsidy claims". However, the Review has warned that the Budget is likely to be under stress from several additional expenditure commitments. In particular, there are two "rather large demands that appear difficult to accommodate within the overall budgeted level of expenditure".

These relate to increased requirement of fertiliser subsidy due to increase in the cost of inputs, especially petroleum feedstock and the outlays on employment programmes such as Food for Work and Sampoorna Grameen Rozgar Yojana.

The Review has said that the draft study by the National Institute of Public Finance and Policy on subsidies has already been received by the Finance Ministry and the Government is examining it in order to target subsidies to the "truly poor and needy".

Growth prospects `bright'

THE Finance Minister, Mr P. Chidambaram, today said the economic growth prospects for the current fiscal were "very bright", notwithstanding the dip in production of kharif crops due to poor monsoon rains.

Speaking to presspersons after presenting his Ministry's Mid-Year Review in Parliament, Mr Chidambaram said that most of the deficit in the kharif crop would be made up in the rabi crop "and therefore the feared setback in agriculture might not happen". Thus, the overall agricultural output this year can be expected to be flat or marginally lower than in 2003-04. As far as industry was concerned, the figures for industrial output for April-October showed 8.4 per cent growth as against 6.2 per cent in the same period last year, he pointed out.