FM posts better fiscal results; seeks further improvement

Updated: Mar 1 2006, 06:40am hrs
Finance minister P Chidambaram proposes to compress the fiscal deficit to 3.8% of the Gross Domestic Product (GDP) and revenue deficit to 2.1% for 2006-07 from 4.1% and 2.6% in the revised estimates for the current fiscal.

The minister is seeking to improve the fiscal position by increasing tax collection and containing non-plan expenditure. The ministers tax proposals are expected to yield an additional Rs 6,000 crore (Rs 4,000 crore as direct taxes and Rs 2,000 crore as indirect taxes). The tax revenue (net to centre) is likely to increase by more than 19%. On the expenditure side, the non-plan expenditure is slated to go up by only 5.5% and plan expenditure by 20.4%.

The fiscal deficit, which was pegged at 4.3% of GDP, has now been revised to 4.1%. Similarly, the revenue deficit has been revised to 2.6% from the original estimate of 2.7%.

Mr Chidambaram attributed it to the strategy of increasing revenue mobilisation by adopting reasonable rates, improving compliance and widening tax base. He proposes to increase the tax-GDP ratio to 11.2% in the next fiscal from 10.5%. The tax-GDP ratio, it may be recalled, was 9.2% in 2003-04 which inched up to 9.8% in 2004-05.

As far as 2006-07 is concerned, the total expenditure has been estimated at Rs 5,63,991 crore up from Rs 5,09,705 crore. Total revenue receipt of the government has been estimated at Rs 4,03,465 crore and revenue expenditure at Rs 4,88,192, leading to a gap of Rs 84,727 crore i.e. 2.1% of GDP.

The fiscal deficit has been pegged at Rs 1,48,686 crore as against Rs 1,46,175 crore in the current fiscal. It is 3.8% of GDP. The primary deficit too is estimated to go down to 0.2% of GDP from 0.5% in the revised estimates for 2005-06. In actual terms it is slated to slip to Rs 8,863 crore from Rs 16,143 in the revised estimates for the current fiscal.

The 5.5% growth in non-plan expenditure, the minister said, is due to normal growth and is one of the smallest in recent years. Plan expenditure, on the other hand, has increased by 20.4%. As a proportion of total expenditure, it has increased from 26.6% in 2004-05 to 28.3% in 2005-06 (RE) and further to 30.6% in 2006-07. This points to the improvement in the quality of government expenditure.

The 12th Finance Commission award will continue to have an adverse bearing on central finances. Under the new scheme of tax devolution, Rs 94,402 crore was released to the states in the current year as compared to Rs 78,595 crore in 2004-05. As regards the grant-in-aid, the fund provided to the states went up from Rs 12,081 crore to Rs 25,134 crore. As far as 2006-07 is concerned, the FM said, both the tax devolution and the grants will be substantially higher.