Sliding into deficit
Less-than-buoyant revenues and over-the-top spending are to blame.
After all the pious promises to keep its spending under control, and despite a creditable performance in 2005-06, comes the news that the Government has in the first quarter itself crossed 50 per cent of the estimated fiscal deficit target for the entire year. Barely three months into the new fiscal, the government's imbalance in its accounts already adds up to Rs 78,000 crore, a sum that should get North Block worried since the target for the Centre's fiscal deficit over the 12-month period was around Rs 1,48,000 crore. In the corresponding period last year, the government's fiscal deficit had amounted to just 36 per cent of its annual target.
What this does to the government's aim of bringing down the deficit to 3.8 per cent of GDP from 4.1 per cent last fiscal, is now open to question because the news on both revenue and expenditure fronts is dismal. The Controller General of Accounts (CGA) data suggest that the revenue deficit in the first quarter of this year has been higher than that of the previous year. Any growth in revenue has been overwhelmed by over-the-top spending, but the Centre seems unfazed; the Chief Economic Advisor, Mr Ashok Lahiri, is optimistic of meeting budgeted targets for the deficit despite the first quarter numbers. That optimism may be misplaced for various reasons. The data show that non-Plan expenditure accounted for more than 70 per cent of the total revenue expenditure for the quarter under review with interest payments being more than a third of the non-Plan expenditure. This is worrying because the revenue shortfalls are more acute this quarter than last year's. It is true that tax revenues do tend to pick up in the second and third quarters but a counter-trend this year may make for rather thin inflows.
To the belated discomfort of North Block, the Commerce Ministry and the States have been far too generous with tax exemptions to corporates to boost investment. The results of such privileges will start showing up later this year and especially the next fiscal in the form of revenue-target slippages even as the expenditure on the revenue account mounts. The Centre has set a target of 2.1 per cent for the revenue deficit this year and already there are signs of it overshooting that limit. But this is not the end of the story. The government has in place a massive social sector development programme for the rural poor in keeping with the Common Minimum Programme that would involve considerable funds.
Ideally, a prudent government would have raised the resources by selling some of its assets so as to create new ones. Divesting a part of its ownership in profitable PSUs is an efficient and economical way of funding development programmes. But the Left partners would rather rely on tax revenues. The CGA data should convince them that even at the very best of times, revenues from taxes are a poor and uncertain source in a country with a backward hinterland. Policy choices may narrow to an expansive fiscal deficit or lack of development funds.
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