Poor tax collections may undermine austerity drive
The finance ministry is planning to cut back expenditure by Rs 2500 crore to partially cushion the impact of the additional outgo arising from the settlement reached with the unions representing central government emp-loyees. The settlement, which was reached on Wednesday night, broke the gridlock over the implementation of the recommendations of the Fifth Pay Commission.
The ministry is working on several proposals to make up the uncovered balance of Rs 1,500 crore. Despite the ministrys initiative, the fiscal deficit target for the year is expected to come under pressure, especially in the light of poor revenue collections and additional transfers to states on account of the implementation of the recomendations of the Tenth Finance Commission.
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The additional outgo will have to be met somehow. We may have to reduce expenditure and increase savings, finance secretary Montel Singh Ahluwalia said in reply to reporters queries after speaking at a seminar on foreign exchange organised by the Con-federation of Indian Industry in New Delhi yesterday.
From what I have seen, the decision will cost another Rs 2,200 crore. While that is worrying, it is not a kind of sum that will destabilise the economy, he added.
The additional outgo on acc-ount of the settlement Wednesday night is expected to be Rs 4,950 crore this fiscal. From next year, the additional outgo would work out to Rs 2,200 crore a year. The higher outgo this year is because of the payment of arrears due from January 1, 1996.
Taking into account the additional provisions made by the cabinet in its July 18 meeting, the total unbudgeted sum for the year would work out to Rs 7,100 crore. Of this, 40 per cent would accrue as the burden due to the railways and will, therefore, not figure in the budget. The finance ministrys burden therefore works out to Rs 4,000 crore.
The implementation of the Fifth Pay Commission will take the Central governments annual wage bill to Rs 44,300 crore. Of this, the additional wage payments during 1997-98 amounts to Rs 17,300 crore. The government had provided for Rs 11,500 crore in the Union budget for 1997-98. This provisioning was based on the impact worked out by the Fifth Pay Commission for the implementation of its recommendations at Rs 11,262.50 crore.
To mitigate the impact of additional expenditure on account of the pay rises, the finance ministry plans to take recourse to the annual savings it achieves by way of unspent plan funds. This is estimated at Rs 1,500 crore.
However, the success of these initiatives would critically depend upon the governments ability to keep revenue colections on course. While corporate tax and income tax have been growing at 36 per cent and 28 per cent respectively during the first four months of the current financial year as compared with the same period last year, customs and excise duty collections have been sluggish with the former growing at near zero per cent and one per cent respectively.