FinMin may best fiscal target

Revenue collections buoyant, but worry over expenditure remains, say experts.

Finance Minister P Chidambaram may surprise the nation by announcing a lower fiscal deficit than projected in the 2006-2007 Budget.

The reason for this hope is higher economic growth and the consequent buoyancy in revenue collections in the recent months.

Chidambaram recently said the target of keeping fiscal and revenue deficits at 3.8 per cent and 2.1 per cent of the GDP, respectively, would be met. "Given the buoyancy in tax collections, I reiterate that the targets will be adhered to," he said.

However, there is a feeling that the deficit may be even lower than targeted. Rajiv Kumar, director and chief executive officer, ICRIER, said the fiscal deficit might go down to 3.6 per cent.

DK Pant of Fitch Ratings said the fiscal deficit could be lower than the budgeted 3.8 per cent. It may be higher in value, though, he says.

Pronab Sen, principal adviser, Planning Commission, said this might happen but it was difficult to predict.

"Revenue collections are way ahead of targets but so is expenditure. Significantly, there has been an increase in non-Plan expenditure. It is not clear why. Plan expenditure is within targets, though."

The worry over ballooning expenditure, however, continues. "A major mystery is that excise collections have not gone up by 20 per cent in line with the growth in manufacturing and industry. We should not get carried away when revenues are buoyant and lose sight of the fact that greater attention needs to be paid to expenditure control. I would watch out for the revenue deficit," Kumar said.

Pant said while growth in tax revenues, including Customs, corporation tax, personal income tax and service tax had been buoyant, "The only cause for worry is excise collections, which have grown at 6 per cent in the first half of 2006-7, much less than projected."

He said high economic growth would offset the expenditure during the first half of the current year. "However, chances are that expenditure could be higher than the Budget estimates," he said.