Deficit target to remain

Govt banks on lower spending by ministries, revenue bounce

Though the Centre has given away nearly Rs 10,000 crore as tax give-aways and additional allocation for social sector schemes and infrastructure, it is expected to maintain its fiscal deficit target of 4.4 per cent of the gross domestic product during 2004-05.

It is banking on the lack of absorptive capacity of the ministries to squeeze expenditure in the fourth quarter of the fiscal as also the revenue buoyancy on account of the higher than assumed inflation rate.

The Budget had assumed an inflation rate of 5.5 per cent, while the actual will be closer to 6.5 per cent. Higher prices will mean that tax revenue, a significant portion of which is ad-valorem, will also go up.

While the Centre is expected to lose nearly Rs 5,000 crore as give-aways through the National Foreign Trade Policy, it cost the exchequer another Rs 2,500 crore when it reduced duties on petroleum products. Some part of the loss is, however, expected to be made up through higher oil prices.

Around Rs 400 crore was lost due to reduction in duties on three steel products, which were announced last month. The Centre could incur further losses in case tariffs are adjusted for edible oil, fuel oil, polyester and sugar. The revenue department was studying the price behaviour of these commodities before taking a final decision.

The government has allocated an additional Rs 2,000 crore for the National Common Minimum Programme (NCMP)- related issues for the current fiscal, taking the total budget for such programmes up to Rs 12,000 crore in 2003-04.

Finance Minister P Chidambaram had announced an additional gross budgetary support of Rs 10,000 crore in the Budget. The only way the fiscal deficit would not be affected, despite the big additionality and the expected shortfall in revenue, is if the ministries are unable to spend the full amounts allocated to them, or if the government, as it did last year, puts a cap on expenditure in the fourth quarter.

"If the allocations are made in the supplementaries which will be presented in October, the ministries will only have the last quarter to utilise funds. Allocations have been announced, but no guidelines are available for new schemes like the revamped food for work with a focus on employment guarantee. Also, a number of important programmes lack absorptive capacity, and there is not adequate time to restructure them within this fiscal," said officials.

Also, the amount of money is large and it would be difficult for any ministry to utilise the full amount within one quarter, they added.

Even if it looks like that could happen, the finance ministry could resort to capping expenditure, as it did last year. Traditionally, ministries tend to use the biggest chunk of their allocations in the last quarter of the fiscal. Last year, the finance ministry, under the NDA government, had asked them to limit expenditure to less than a third during January-March.

Noting that there was a rush of Plan spend every year during the closing days of the fiscal and that very few departments spread expenditure evenly, the finance ministry had asked secretaries of various departments to monitor Plan spend every quarter to ensure an even expenditure pattern.

Revenue collections are also expected to be short of target on account of the partial rollback of the transactions tax and less than projected education cess collections.

The projection of Rs 4,910 crore is based on tax collections for the full year, while the tax has been levied September onwards.

"It would be difficult to collect the cess, especially on Customs duty for the first half of the year," said government officials.