Fiscal targets in reach, discipline needed

ECONOMIC SURVEY 2005-06\ CENTRAL FINANCES

Some pressure points in the form of below-par performance in excise and corporation tax.

Fiscal consolidation under the Fiscal Responsibility and Budget Management Act will resume in the Budget for 2006-07.

Stating this, the Economic Survey pointed out that the Centre could meet the fiscal and revenue deficit budgeted for the current fiscal if it maintained fiscal discipline and controlled expenditure.

"While some downside risks of not achieving Budget estimates under revenue receipts remain, the fact that there is room for some expenditure compression with tight financial discipline, the fiscal and revenue deficits budgeted could be met," the Survey tabled in Parliament today said.

While the 18.8 per cent growth in gross tax revenue in the first nine months of the current year was the highest in the last five years, the Survey noted that there were some pressure points in the form of below-par performance in excise and corporation tax.

As a proportion of Budget estimates, revenue realisation in 2005-06 was lower in excise, personal income tax, corporate income tax and non-tax revenue, it said but added that on the expenditure front, the levels were lower in non-Plan expenditure like interest payments, interest payments, major subsidies and pensions.

"In a welcome sign of improved expenditure management, 66 per cent of the plan expenditure budgeted have been spent by December 2005, indicating a growth of 16.5 per cent. Non-Plan expenditure grew only by 6.7 per cent upto December, 2005," it said.

The Survey noted that the pause in the revenue deficit in 2005-06 was a one-off measure to accommodate demand on resources under the Twelfth Finance Commission.

"Consolidation would resume in the Budget for 2006-07, and the eventual targets of fiscal and revenue deficits under the FRBMA would be met by the terminal year 2008-09," it said.

The Survey said there were indications that the slower progress in fiscal consolidation at the Centre in the current year could be made up by the faster progress on this front by state governments.

Maintaining that the challenge of achieving the fiscal adjustment mandated by the Fiscal Responsibility and Budget Management Act lay in the medium-term process and strategy, the Survey said it was critical to raise the tax-GDP ratio to 13 per cent by 2008-09 and effect a shift in the composition of expenditure in favour of those creating productive assets.

While the fiscal space opened up through higher tax to GDP ratio could be used to bridge the deficits in social infrastructure and other development needs, there is much scope to increase the productivity of public expenditure through convergence of schemes with similar objectives, cutting down time and cost overruns, collecting appropriate user charges, realising value for money in subsidies and ensuring better outcomes, the survey added.