The finance ministry has conceded economic growth this financial year will not be as rosy as painted by the Economic Survey. But the ministry does not share critics’ view that the fiscal deficit will overshoot its target of 4.6 pre cent of GDP. It said the government would do everything keeping in mind this target.
The ministry’s calculations say tax revenue will not be impacted if growth falls a bit. In fact, it says indirect tax collections will be higher if inflation remains high.
Economists do not agree. Anis Chakravarty, director at Deloitte Haskins & Sells, pegged fiscal deficit in the range of 5-5.5 per cent of GDP for this financial year.
On expenses, the ministry officials do not see higher outgo because of elevated oil prices. They said fertiliser subsidy rollovers were minimal. Food subsidy due to proposed food security law would impact outgo only for three-four months of this financial year, they said, expressing confidence that any larger outlay would be neutralised with matching savings on other heads.
“We are on the path of fiscal consolidation. Any decision of the government will be taken keeping in mind the fiscal deficit target. The government is fully committed to remain within the projected target of 4.6 per cent fiscal deficit,” a senior government official said.
Rising crude prices may increase petroleum subsidy, but the ministry had already provided Rs 23,640 crore for this in the Budget, unlike last year when nothing was provided, the officials said. However, critics say oil companies have already taken this amount on their books and any further subsidy will have to be provided through supplementaries.
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On fertiliser subsidy, the ministry feels the Budgetary provision of around Rs 50,000 crore is adequate for this year, as rollovers are just Rs 500 crore, against Rs 5,000-7,000 crore in the previous years. The government has provided Rs 60,573 crore for food subsidy in 2011-12, slightly lower than Rs 60,599 crore in 2009-10.
The ministry has analysed that its tax collections also look under control and there might not be a major shortfall.
The reason behind the optimism is that it recorded a compounded annual growth rate of 29 per cent in direct tax collections for four years up to 2007-08, and thus, the 18 per cent growth target this year looks achievable. The Centre’s revenue target for this financial year (sans states share) stands at Rs 6.64 lakh crore.
The economic survey had pegged growth at 9 per cent for 2011-12. Chakravarty said economic growth was likely to be in the range of 8.4-8.5 per cent.
“We expect headline growth to slow to 8.1 per cent in 2011-12 from 8.5 per cent in 2010-11… A less than favourable monsoon could result in agriculture growth being flat over 2010-11 levels and consequently, headline GDP growth coming in at 7.6 per cent,” Citi India economist Rohini Malkani said. The economy grew by 8.5 per cent last financial year.