Amid limited scope of increasing expenditure during the 12th Five Year Plan beginning next month, the government needs to focus on key areas like health and infrastructure, the Economic Survey said today.
"The limited scope of increase in Gross Budgetary Support (GBS) would be a binding constraint in allocations to improve sectors like health, education, infrastructure. Thereby strict prioritisation will have to be enforced in 12th Plan to achieve sectoral growth targets,"Economic Survey 2011-12 said.
The GBS, or Plan expenditure, is the amount, which is released by the Centre for various social sector schemes like rural employment guarantee and also includes assistance to states.
The government is in the process of increasing spending on social sectors like health and education as percentage of GDP. It is planning to increase expenditure on health from 1.4% of GDP in the 11th Plan (2007-12) to 2.5% in the 12th Plan.
According to the survey, aggregate resources for the Centre are to fall from 14% of Gross Domestic Product in 2011-12, to 13.11% of GDP in terminal year of 12th Plan (2016-17).
It also projected the resource crunch for GBS against the back drop of government's plan to reduce the fiscal deficit to 3% of GDP in the final year of 12th Plan (2016-2017) from 4.7% in 2010-11. It is expected to touch 5.5% level this fiscal.
The size of GBS is projected to increase mainly due to the projected decline in non-Plan expenditure from 9.09% of GDP in 2011-12, to 7.36% of GDP in 2016-17.
The non-Plan expenditure, which mainly includes recurring expenditures like salary bills and interest payments, will grow at around 10%, it said.
It also suggested that effective targeting of subsidies like for fuel, fertilisers and food would be critical for achieving the resource targets in the 12th Plan. The document also asked to push the critical tax reforms for generating additional resources for the Plan expenditure.
The government is in the process of introducing Goods and Services Tax which would subsume the central and state levies and improve revenue collections.
Besides, the government is in the process of introducing the Direct Tax Code to replace decades old Income Tax Act, 1961 for improving efficiency to maximise revenue collections.
The survey observed that subsidies would decline to 1.24% of GDP in the final year of 12th Plan from 1.6% in the current fiscal.
The Plan expenditure is expected to increase by about 0.83 percentage point of GDP to 5.75% in the terminal year of 12 Plan from 4.92% of the GDP in 2011-12.