The performance of India?s central finances in the first half of 2007-08 presents a mixed record. Though the deficit levels have fallen in absolute terms, the numbers in relation to their targets are still in excess of what have been laid down by the FRBM Act. Moreover, both receipts and expenditure show a deterioration in flows. One reason for disquiet is the deceleration in tax collections, which may point to a slight slowdown in the second quarter. Growth of gross tax collections, which rose by close to a third in the first half of the previous year, went up by just around a quarter this year. Corporate tax collections have sagged somewhat, with growth decelerating from around half last year to just above a quarter in the current year. However, income tax has exceeded expectations with growth accelerating from less than a fifth last year to more than a third now. The problem, really, is with indirect taxes, the collections of which from both domestic production and imports have slowed down. While excise duty collections slowed to 3.4% in the first six months of the year (a shock, given the manufacturing sector?s growth), those of customs duty dipped to a growth level of just 15.9%, half the previous year?s rate.
A major extraordinary item in the Centre?s finances this year is the inclusion of receipts of Rs 34,308 crore on account of the RBI?s sale of its stake in SBI to the government (which assumes direct ownership of the bank), and also an expenditure of Rs 35,531 crore for the acquisition of the same shares. While these sums roughly cancel each other out, they enlarge the overall figures, making back-of-the-envelope calculations slightly difficult. Once these transactions are excluded, the Centre?s broad financial showing no longer looks very good. Even if the government seems to have made every effort to slow down its overall spending to keep itself within the Budget target of 10%, it has slipped. Consumption expenditure, in particular, displays a loss of discipline, while investment spending runs below target?never a good sign. The damage done, though, is contained by the growth in revenues, which too is above its Budget target despite the slowdown in tax collections. Meeting the year?s 3.3% fiscal deficit target will prove stiff, but with fading fears of an early election, it isn?t a lost cause.
