So far, so good

The GDP growth figure for the first quarter, at a handsome 7.4 per cent, is as should have been expected. The figure for the second quarter too should be flattering; the problem will come in the third and fourth quarters, after the kharif harvest and a fall in agricultural output.

Nevertheless, there is room now to hope that the full year could see GDP growth in the region of 6 per cent""a very encouraging performance in the wake of a poor monsoon.

Both industry and services will continue to do well in the coming months, especially with investment demand kicking in. Add to that the export buoyancy, and it is possible that the inevitable drop in the growth rate (from last year's high of 8.2 per cent) will be minimised.

The other bit of good news is that the current account balance was still positive in the first quarter, despite the rising oil prices. It is hard, though, to see the full year end with anything other than a deficit on this account""and this should ease pressure on the rupee and allow it to hold steady against the dollar if not depreciate marginally, in recognition of India's higher inflation rate.

The unpredictable element in the equation remains capital flows: if overseas institutional investors have re-discovered emerging markets in recent weeks, a significant level of capital inflows could re-start and alter many macro-economic equations.

All this should make Mr Chidambaram smile. But he has problems to worry about, because tax collections have been slower than expected in the first five months, and much of the full year's budgeted deficit has been used up by August.

Mr Chidambaram has been blessed with very rapid growth in direct tax collections (in part, because the introduction of the Tax Information Network, or TIN, seems to have improved tax compliance straightaway).

But indirect tax revenues are clearly lagging, a trend that runs counter to the buoyancy in non-agricultural output. With indirect tax collections yet to show significant improvement, and with fiscal measures like the increase in service tax and the imposition of a securities transaction tax only from the middle of the year, the government is short of resources.

It is a reflection of the deficit being out of control that the government has decided on the usual mix of economy measures and asked for a minimum dividend for PSUs, while also asking them to issue bonus shares (a mystifying demand).

The Union Budget has taken credit for Rs 12,978 crore as dividends from PSUs, well above the Rs 10,841 crore worth of dividends received last fiscal. It will be recalled, however, that the 2003-04 Budget target for dividend receipts was only Rs 7,136 crore; the final receipts were much higher, and this is likely to be the case this year as well since most companies have done very well on profits.

Also, the budgeted receipts from "dividend/surplus profits of the Reserve Bank of India, nationalised banks and financial institutions", estimated at a low Rs 5,896 crore, are barely half the revised estimate of Rs 11,239 crore for 2003-04.

Fortunately for the government, it has been cautious about assuming dividend receipts even as it was optimistic about its tax targets.