The mid-year review of the economy has drawn attention to a sharp deceleration in the growth of capital expenditure to 3.6 per cent in April-September even as non-Plan revenue expenditure spurted by 14.4 per cent.
The review however says the fiscal situation in the first half of 2002-03 has been more or less satisfactory compared to the disappointing performance of 2001-02, when the fiscal deficit touched 5.9 per cent of GDP. But it also acknowledges that revenue projections for the current financial year have been too high.
The growth in net tax revenue is projected to grow 6.8 per cent and this is higher than even the revised growth estimates for 2001-02. To achieve higher revenue, better recovery of user charges and restructuring of tax revenues with minimum exemptions in central excise and sales tax were needed.
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The review clearly indicates that if the fiscal condition does not improve, the economy will not be able to break away from the current growth rate levels of 5-5.5 per cent. The review warns of a possible revenue shortfall in 2002-03.
On the expenditure side, it says the huge plan size should be pruned because it is pushing states into a debt overhang, Finance Secretary S Narayan and Chief Economic Adviser Ashok Lahiri explained at a press conference.
Lahiri said the government borrowings would become a drag on the economy once the demand for credit from the manufacturing sector sharpened.Along with expenditure overrun,