Revenue target optimistic, says Plan panel

The Planning Commission is concerned that revenue generation targets projected by Finance Minister P Chidambaram could prove to be optimistic and adversely impact the allocation of funds to states.

"The revenue projections, particularly on the direct tax side, is optimistic and may not be achieved. Obviously, this will impact the devolution of funds to states which could be forced to undertake unintended borrowings from the market towards the end of the current fiscal," an official told Business Standard.

Funds are allocated to states in 14 installments as per the formula recommended by the Finance Commission. Officials pointed out that in case of a shortfall in revenue generation, the last two installments of states are revised.

"Since most states have committed expenditure, rejuggling of the installments forces them to go for unintended borrowings," an official said.

Chidambaram has estimated a phenomenal 40 per cent increase in corporate tax collections at Rs 88,436 crore in the current fiscal to achieve an overall direct tax receipt of Rs 1,39,365 crore.

Among the indirect taxes, the 18 per cent increase in excise collection at Rs 109,199 crore for 2004-05 is mostly on account of the hike in duty on steel products from 8 per cent to 12 per cent.

In addition, the minister hopes to collect an ambitious Rs 18,000 crore by way of direct and indirect tax arrears. Commission officials point out that the mop-up from arrears is far too optimistic, as usually the recovery from this is not more than Rs 10,000 crore in a year.

Commission officials are quick to point out that this was not the first time, when the finance ministry, has been optimistic on the revenue front. Former finance minister Jaswant Singh, in his Interim Budget for 2004-05, too made optimistic revenue projections.

"While the Commission will finalise the allocation to states on the basis of the revenue projections made in the Budget, the impact of a shortfall in revenue would be felt later in the year when the revised estimate exercise is undertaken by the Centre around December," an official said.

As per available trends the states' borrowings are usually between Rs 12,000 to Rs 15,000 crore.