The drought of 2002 cost the government of India over Rs 16,000 crore the economy could sustain it on the basis of buoyancy in tax receipts, disinvestment proceeds and larger non-tax receipts like dividends, including that from the Reserve Bank of India. With inflationary pressures on the increase and receipts softer than before, this would be very difficult this year.
This is the first year of the Fiscal Responsibility and Budget Management (FRBM) Act. The targets of revenue and fiscal deficit reduction are all the more difficult because of the assumptions of high growth in revenue collections in the budget. Having passed on over Rs 10,000 crore to the Planning Commission, theres little room for large expenditure for drought relief.
Foodgrain surpluses are earmarked for food-for-work programmes, and separate funds would be needed for drinking water and fodder. The FRBM mandates that if the fiscal deficit exceeds 45 per cent of the annual budgeted figure by the end of the second quarter, the government will have to take corrective measures. These should include expenditure control as well as additional taxation, both of which will be very difficult given the political compulsions. There must be fervent prayers on from the managers of government finances.
The author is former finance secretary to the Government of India