FRBM Act should be revived to control expenditure

Written by fe Bureau | New Delhi | Updated: Mar 16 2012, 09:25am hrs
Predictably, chief economic adviser Kaushik Basu has not put a number to where he expects the fiscal deficit for 2011-12 to end up. A day ahead of the presentation of Budget 2012-13, Basu has, however, said structural reforms in expenditure will be the key to achieving fiscal consolidation. He has indicated that the Budget could unveil a new framework for Fiscal Responsibility and Budget Management (FRBM).

The survey, however, projects fiscal deficit to come down to 4.1% in 2012-13 and 3.5% in 2013-14. Budget 2011-12 had projected a 4.6% fiscal deficit by March-end 2012, but when finance minister Pranab Mukherjee unveils the revised numbers on Friday, market experts expect it to be close to 5.8% for 2011-12.

Predicting a slippage in both the revenue and fiscal deficits targets, the economic survey notes: "There is a need to anchor fiscal consolidation on structural reforms in expenditure.

For the government, the problem stems from a sharp slowdown in industry because of rising costs that have dented profits. This has lowered tax collections for the government.

The survey said lower-than-expected growth in revenue receipts has resulted in large fiscal slippage. Also, as the government had to provide additional expenditure on account of stickiness in global commodity prices, the fiscal road map went haywire.

The subsidy bill of the exchequer has exceeded budget estimates by a hefty R1 lakh crore.

In the first nine months of the current fiscal, gross tax revenue has grown 12.2% against the BE (budget estimate) target of 17.3%, the survey said.

Latest figures relating to indirect tax show the growth rate till the end of February at 14.6% only. On the other hand, against a target of 4.9% for the whole year, growth in total expenditure in the first nine months of 2011-12 was 13.9%.

In the April-December period, total expenditure was at R8,96,361 crore, at 71.3% of the BE of R12,57,729 crore. During the same period, revenue receipts stood at R4,98,491 crore, at 63.1% of BE of R7,89,892 crore, while capital receipts were at R3,97,870 crore, at 85% of BE of R4,67,837 crore

"Besides, the financial market conditions were not appropriate for going ahead with the scheduled disinvestment plan. As such, a slippage on the targets of the deficit indicators is likely, though efforts are afoot to minimise them," it said.

Against the disinvestment target of R40,000 crore, government could garner only R13,912 crore.

While the targets will be missed this fiscal, the medium- term stance of fiscal consolidation could be salvaged, it added. The new FRBM framework is likely to factor in the developments in the current fiscal and indicate the correct fiscal consolidation path for the medium term.