Economy on promising path

Identifying increased global oil prices and hardening of interest rates as the main challenges facing the Indian economy, the government forecast the outlook for the current year as 'promising'.

The finance ministry added that it was hopeful of maintaining fiscal discipline by pushing expenditure management reforms.

"The first quarter signals are fairly satisfying in the backdrop of continuing macroeconomic stability," Finance Ministry P Chidambaram said in a statement on the first quarter review of the trends in receipts and expenditure of the current financial year. The document was tabled in Parliament today.

The statement pointed out that the fiscal deficit touched 52.3 per cent of the Budget estimate at the end of the first quarter of 2006-07 compared with 36 per cent of the corresponding period last year, mainly on account of front loading of expenditure by various departments and ministries.

"A significant mismatch in revenues and expenditure exacerbated the deficit situation," it said, adding that the government was confident this imbalance would even out as revenue receipts stepped up and expenditure pattern stabilised during the remaining part of the year.

In the first quarter, 32 per cent increase in tax revenues and 25 per cent in non-tax revenue was overtaken by a sharper growth in total expenditure. While plan expenditure increased by 59 per cent, non-plan expenditure went up by 34 per cent.

The increase in plan expenditure was due to large advance transfers made for the rural employment guarantee scheme and other social sector schemes, while non-plan expenditure was mainly due to increase in food and fertiliser subsidy.

Overall subsidies increased to Rs 17,155 crore in the first quarter, accounting for 18 per cent of the total non-plan expenditure from Rs 10,799 crore in April-June 2005.

The inflexible items of expenditure like interest payments and defence services together contributed 33 per cent of the total expenditure during April-June 2006 with an amount of Rs 42,896 crore. The corresponding expenditure on the two heads last year was 40 per cent of the total expenditure.

"Notwithstanding the comparatively higher trends in expenditure during the first quarter, the government is determined to contain the expenditure within the Budget," the report said.

Referring to the performance during 2005-06, the ministry said that the government had not only been able to achieve the deficit targets set under the FRBM Act 2003 but had also reasonably enabled most state governments to reduce their fiscal stress through debt consolidation.