New Delhi, Feb 15: Fiscal deficit for the year 1997-98 is likely to overshoot the budgeted estimate of Rs 65,464 crore by about Rs 6,000 crore. The finance ministry has projected its re-revised fiscal deficit at 4.9 per cent of the gross domestic product (GDP).The higher deficit, despite the postponement of the Rs 5,000-crore transfer to the states subsequent to the adoption of the new devolution formula and Rs 7,000 crore on account of VDIS, is because of an extra outgo of Rs 2,500 crore from the central exchequer owing to a spurt in small savings. The centre bears 75 per cent of the liability on small savings mopped up by state governments. Another Rs 1,000 crore has been earmarked for additional expenditure on the defence and Fifth Pay Commission awards, taking the shortfall from estimates to Rs 6,000 crore.
The finance ministry has undertaken an intensive exercise to see if it can beat down the deficit figure further through savings on plan expenditure. The revenue shortfall (from budgetedestimates) is now only Rs 2,500 crore. This deficit is entirely because of the shortfall in accruals on the customs front. Inflows from direct taxes (corporate and income) are on target and a projected gap in excise revenue is being rapidly bridged through a stepped up anti-evasion campaign. The estimates are after taking into account the mid-term fiscal correction undertaken by the United Front government when the Pay Commission award was hiked and a decision was taken to postpone devolution of funds and cut government expenditure. The expenditure cut was subsequently restored by finance minister P Chidambaram after the VDIS bonanza, though he still had to live with a huge shortfall arising out of deferred disinvestments in key central-sector utilities.
As far as savings in government expenditure is concerned, there will be none on the non-plan side. On the plan side, savings are estimated at around Rs 1,000 crore because of the inability of some central ministries to spend allocated funds. The financeministry is scrutinising every plan expenditure head with a microscope to see if it can save more: "a few hundred crores here and a few there," according to a ministry official.
Meanwhile, the union finance ministry is planning on pegging the fiscal deficit for 1998-99 at between 4 per cent and 4.25 per cent of the GDP in the interim budget that will be placed in parliament before March 31.
The `pre-budget' exercise for the interim budget has been completed. Budget discussions with various central ministries are over.
The interim budget will provide `secular' projections on expenditure and revenue for fiscal 1998-99 and provide an indicative estimate of the fiscal deficit for the year. The interim budget will not carry any taxation proposals.
"The idea is to present a rough estimate of the likely financial scene for the next fiscal. Accordingly, fiscal deficit will also be an indicative one -- some sort of a benchmark for the new government to achieve," a ministry official said. "It is important toensure that the deficit is not pegged at too low a figure -- something which the government cannot achieve," he said.
Along with the interim budget, there will also be a motion for a vote-on-account to take care of government expenditure in the new financial year until such time as a new budget is presented.
But before the interim budget sees the light of day, a lot of crucial decisions are likely. For one, the political leadership will have to decide how much of the onus of the Rs 16,000-crore worth of postponed budgetary outgo should it bear. There is a possibility that the new government may lump some, if not all, of the expenses (mainly Rs 7000 crore on VDIS and Rs 5000 crore on devolution of funds to states) to this year's budget.
There are advantages in doing so: for one, the fiscal burden on the incumbent government is less and there will be a lesser requirement to tap extra revenue flows to take care of expenses incurred earlier; second, political mileage can be had from messing up with thefinances of the previous government. But finance ministry officials have warned against such steps. Reason: Fiscal deficit will widen, and the gap will be bridged only through deficit financing, with resultant upsurge in money supply and inflation.
The new budget, however, will carry the policy stamp of the government. A new cabinet and, hopefully, a newly-constitued Planning Commission, are expected to give directions to the finance ministry on the possible changes on plan and non-plan expenditure outlays. Apparently, there is very little room for dramatic change on the non-plan side and it is plan expenditure that will undergo a change in term of overall outlay and pattern of distribution of funds over expenditure heads.
New revenue measures -- which will be indicative of the overall economic thrust as also the nature of budget balancing -- will be the exclusive preserve of the new government.
According to the ministry, a new budget can be ready by May at the earliest.
INSIGHT
In view ofthe slowdown in industrial growth, it is remarkable that revenue collections from corporation and income tax and excise duties are on target. The targets had been considered over-ambitious when the budget for 1997-98 was presented. But for the surcharge on customs duties, the shortfall in revenue from imports would have been more than just Rs 2,500 crore.
In a year of GDP decline, the fiscal deficit was bound to exceed the targeted 4.5 per cent. The revised deficit now forecast at 4.9 per cent is not excessive. The latter has, however, been window-dressed. The centre has not transferred Rs 5,000 crore of tax-revenue devolution owed to the states; and it has retained Rs 6,000 crore of VDIS money that should have gone to them. The impact of this will have to be borne by the budget for 1998-99.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
