As the Centre expects a significant reduction in fiscal deficit this year, experts today cautioned the celebration could be short-lived unless sustained initiatives were taken to reduce government expenditure or find newer sources of revenue.
While revenues from auction of telecom (3G) spectrum and response to the partial disinvestment of public sector giant Coal India shares will help the government raise non-tax one-time revenues this year, it may not be possible to do the same in the future, they feel.
At a conference on mid-term review of the economy at India International Centre here today, M Govinda Rao, director of National Institute of Public Finance and Policy (NIPFP) and a member of the Economic Advisory Council to the Prime Minister, said the “future is much more difficult” in terms of containing fiscal deficit.
“There are no low-hanging fruit anymore,” he said, referring to this year’s additional earnings from disinvestment and spectrum auction.
Rao said any projection of the country’s economic growth should factor in all the serious issues of global imbalances and its effects on the Indian economy. “The US will continue its protectionist policy. China will continue to pursue its merchandise policy. Both will have short-term as well as long-term impact on India.” He also took serious note on the sharp increase in the current account deficit.
“If we are to achieve our (expenditure) targets in the health and education sector, we will have to adjust for another six per cent of fiscal deficit. Part of our capital expenditure is recurring, which means there is another 2.5 per cent to five per cent increase in deficit. Can our tax reforms balance this?” he said, adding that it calls for more prudent expenditure and improvement of delivery systems among other fiscal management measures.
On the current stalemate on GST (Goods and Services Tax), Rao said the problem was not related to the Centre’s insistence on retaining veto power. “The Finance Commission’s recommendation is retrogressive. The current move has made state taxes more heterogeneous than before,” he said.
M S Verma, chairman, International Asset Reconstruction Company Pvt Ltd, who moderated the discussion, said the government should utilise the one-time bonanzas to ease future pressure.
The latest data by the Controller General of Accounts (CGA) show the central government has succeeded in restricting its fiscal deficit during the first half of the current financial year to 34.9 per cent of the budget estimate for 2010-11, compared to 49.3 per cent in the period a year ago.
According to CGA, the Centre’s fiscal deficit is estimated to have decreased by 32.62 per cent to Rs 1,33,252 crore during the six months ended September, compared to Rs 1,97,775 crore in the first six months of 2009. The government has budgeted for a fiscal deficit of Rs 3,81,408 crore for the current financial year.
In the first half of the financial year, the Centre’s net tax revenue has increased by 25.72 per cent to Rs 2,33,415, with Customs (62 per cent) and central excise (41 per cent) seeing the sharpest rise. What really contributed to the surge in revenue receipts was mainly a 2.8-times rise in non-tax revenue to Rs 1,64,819. This was mainly on account of the over Rs 100,000 crore received through sale of airwaves for broadband wireless access and third-generation (3G) mobile telephony.
