Finance and company affairs minister Jaswant Singhs expenditure strategy entails larger investment from external sources, a significant step-up in both private and public investment, borrowings for productive spend, a slash in non-Plan expenditure, removal of tax exemptions and further widening of the tax base.
Outlining the imperatives for 8 per cent growth during the Tenth Plan period, Jaswant Singh, in his October 23 letter to Planning Commission deputy chairman KC Pant, has cautioned about assumptions on improvement in incremental capital output ratio and its contribution in achieving the desired 8 per cent growth.
He has said improvement in efficiency in capital use needs to be seen in the context of huge capital assets lying idle, and in the case of public sector undertakings, in the obsolescence and lack of modernisation of their assets.
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While supporting the Planning Commissions argument for higher Plan outlay, Singh has stated that the entire plan expenditure is met through borrowed funds.
"While borrowing itself is undesirable, it must be used for productive expenditure and not for current expenditure. Otherwise it could lead to unsustainable levels of public debt," he said stressing the need for a gradual but sustained reversal in the ratio of revenue to capital expenditure.
Significantly, Singh has highlighted that budgetary support for Plan outlays would depend on realisation of disinvestment receipts besides attaining projected tax-GDP ratio, decline in non-Plan expenditure and attaiment of projected GDP growth rate.
He has, however, said that reduction in non-Plan expenditure needed to be tampered given the fact that bulk of it is on interest payments, defence subsidies and constitutionally mandated transfer to states.
The Tenth Plan document has projected the non-Plan expenditure to decline significantly from 11.3 per cent of GDP in 2001-02 to 9.9 per cent in the terminal year.
Realising that the Plan outlay is set to double between 2001-02 and 2007-07, the finance minister has said that higher investments from external resources was necessary to meet the targers.
The Tenth Plan document envisages a substantial incerase in budgetory support for Plan from 4.3 per cent in GDP in the terminal year of Ninth Plan to 5.4 per cent in the terminal year of X Plan.
Interestingly, he has also pointed out that a tax buoyancy of 1.26 as assumed in the Tenth Plan is the highest ever since the last four decades.
Stating that availability of resources would be critical to meeting the proposed expenditure, he has stressed the importance of assumptions regarding increase in tax-GDP ratio from 8.4 per cent in base year to 9.9 per cent in terminal year.
Terming it as "ambitious", Singh has said such buoyancy cannot be attained by merely increasing tax compliance.
Exemptions available now need to be done away with and the tax base too should be further widened, he has said.