FM gets cracking on revenue deficit

DEFICIT/ Fiscal deficit pegged at 4.4%; FRBM deadline extended by a year

Finance Minister P Chidambaram has estimated a 1 percentage point cut in revenue deficit to 2.5 per cent of the gross domestic product (GDP) in the current fiscal.

Though he has proposed an amendment to the Fiscal Responsibility and Budget Management Act to extend the timeframe for revenue deficit elimination by a year to 2008-09, he expects it to come down by 0.7 percentage each over the next two years to touch 1.1 per cent by 2006-07.

For Chidambaram, the present environment presents an opportunity for effecting fiscal consolidation. In his macro-economic framework statement laid before Parliament today, he said the 24.6 per cent growth in gross tax revenue was predicted upon the robust economy.

The fiscal deficit for 2004-05 has been estimated at Rs 137,407 crore or 4.4 per cent of the GDP compared to 4.8 per cent of the GDP in the revised estimate for the previous fiscal. The primary deficit""fiscal deficit minus interest payments ""is estimated at Rs 7,907 crore or 0.3 per cent of the GDP in 2004-05.

Chidambaram has been bullish in his revenue projections for this fiscal. Deepening of tax reforms on the back of an average nominal growth rate of 12 per cent in the GDP is expected to help the Centre's gross tax revenues grow by 24 per cent to Rs 317,733 crore in 2004-05.

He has estimated an over 40 per cent jump in corporate tax collections to Rs 88,436 crore and a 70 per cent increase in the service tax mop-up to Rs 14,150 crore in the current fiscal.

Income tax collections are estimated to grow over 26 per cent to Rs 50,929 crore, excise over 18 per cent to Rs 1,09,199 crore and Customs 10 per cent to Rs 54,250 crore.

The ministry has estimated the tax-GDP ratio to touch the double-digit mark of 10.2 compared to 9.4 in the Budget Estimate for the last fiscal. The minister expects the buoyancy to continue with tax-GDP projections of 11.1 and 12.1 in the next two fiscals, respectively.

One of the major objectives of the FRBM Act is to effect a shift in the composition of total expenditure, in favour of capital expenditure to help achieve a higher growth trajectory.

The elimination of revenue deficit and generation of revenue surpluses, thereafter, will provide the government the fiscal space to for higher public investment.

Chidambaram has also estimated the total expenditure in the current fiscal to remain flat at Rs 477,829 crore compared to Rs 473,255 crore in 2003-04. His policy seeks to re-orient expenditure allocation priorities in two major areas of defence and the social sector.

He has made an additional Rs 11,000 crore for meeting the defence needs and another Rs 10,000 crore for the thrust areas defined in the National Common Minimum Programme.

The Planning Commission has been asked to manage the additional gross budgetary support of Rs 10,000 crore. Of this, Rs 6,000 crore is for new and restructured schemes of the central ministries and Rs 4,000 crore for new schemes under state Plans. Most programmes are in the social sectors like food-for-work, Sarva Shiksha Abhiyan and drinking water.

Chidambaram has reshuffled his expenditure heads, hacking down on all heads of non-Plan expenditure. He has assumed that non-Plan expenditure to decline by 5.8 per cent to Rs 332,238 crore from Rs 352, 748 crore. He has used the financial space to raise Plan expenditure by 19.82 per cent to Rs 145,590 crore from Rs 121,507 crore in the Revised Estimate for 2003-04.

Of this, capital Plan expenditure is expected to increase by over Rs 10,000 crore to Rs 53,747 crore.