FM issues alarm on revenue deficit

Pointing out that the suggested financing of the 11th Plan does not ensure elimination of the revenue deficit by 2008-09, as required by the Fiscal Responsibility and Budget Management (FRBM) Act, Finance Minister P Chidambaram has said that containing the revenue deficit is crucial to ensuring debt sustainability.

Noting that the approach paper to the 11th Plan seeks to conform to the requirements of the FRBM Act, both for central as well as state governments, Chidambaram has underlined that the Act will facilitate sustainable growth and improve the quality of public expenditure.

Stressing the need to eliminate the revenue deficit by 2009, he has cautioned against the risk of being seen as tinkering with standard accounting practices in order to achieve FRBM targets.

"We should not be accused of fitting the foot into the shoe," he said in response to the draft approach paper casting doubt on the tenability of the current system of classification of expenditure as revenue and capital expenditure.

"As far as the government is concerned, a grant or subsidy or viability gap funding is a final giveaway. If assets are indeed created and are vested in the relevant government, perhaps, the grant of subsidy can be treated as capital expenditure. Such treatment should conform to accepted accounting standards. I will support re-classification in some areas provided it meets the tests of capital expenditure," he said.

The FM also sounded a note of caution on the assumption in the approach paper of tax buoyancy of 1.25 for the five-year period and the assumption that revenue from non-tax sources will grow at 12.5 per cent annually.