GFD lower than gross budgetary Plan support

A combination of controlled expenditure and enhanced revenue mobilisation has meant that the country for the first time in two decades recorded a lower gross fiscal deficit than the gross budgetary Plan support in 2004-05.

Based on the optimism of a continuing uptrend in revenue collection and better expenditure management, Finance Minister P Chidambaram on Tuesday went ahead and projected an even lower fiscal deficit in 2006-07.

Announcing drastically lower figures, Chidambaram pledged to further cut the fiscal deficit for 2006-07 to 3.8 per cent (at Rs 148,686 crore) and the revenue deficit to 2.1 per cent (Rs 84,727 crore), in line with the Fiscal Responsibility and Budget Management Act. He also pegged total expenditure at Rs 563,991 crore for 2006-07 while estimating total revenue at Rs 403,465 crore.

Chidambaram said with the actual fiscal figures available now, the year 2004-05 had proven to be a turning point. "A lot will depend on the actual figures for 2005-06, as that would reveal whether the trend continued," he said.

Accordingly, the revenue deficit has been pegged lower at 2.6 per cent while the fiscal deficit is estimated at 4.1 per cent during the current year. The revised estimates for 2005-06 had pegged the revenue deficit at 2.7 per cent and the fiscal deficit at 4.3 per cent.

Expressing satisfaction at the improved figures, Chidamabaram promised a return to the path of fiscal prudence. "Next year we will remain true to the path of fiscal prudence. We will pursue a prudent fiscal policy and,together with the RBI, ensure stable monetary policy," he said. One of the key reasons was that for the past three years the country had witnessed an "unprecedented" 20 per cent average growth in tax collections.

Revenue receipts are pegged to rise by 15 per cent to Rs 4,03,465 crore in 2006-07.

The tax collection target has been set at Rs 3,27,205 crore for2006-07, a 20 per cent jump from the 2005-06 Budget estimate of Rs 2,73,466 crore. The revised estimate for tax collection for the current year is Rs 2,74,139 crore.

Chidamabaram maintained that the strategy of enhanced revenue mobilisation through reasonable rates, better tax administration and the use of technology would continue to yield results.

Accordingly, he projected that the gross tax-to-GDP ratio would increase to 11.2 per cent in 2006-07, up from the revised estimate of 10.5 per cent in 2005-06.

However, the government did not ignore its political moorings and the National Common Minimum Programme (NCMP). Chidambaram unveiled substantial increases in social and infrastructure spending, while continuing with a tax regime that has no new levies. Instead, he cut Customs and excise rates, while raising the service tax rate and securities transaction tax.

While the government has deferred its borrowing for the current year and may take a call on this in March, it aims to lower borrowing and other liabilities to Rs 1,48,686 crore to finance the fiscal deficit in 2006-07.

This is lower than the Rs 1,51,144 crore budgeted for 2005-06. However, market loans are slated to go up to Rs 1,13,778 crore in the next fiscal year, up from Rs 1,03,836 crore budgeted for 2005-06.

The primary deficit (the fiscal deficit minus interest payments) has been pegged at Rs 8,863 crore for 2006-07, or 0.2 per cent of GDP, compared with the revised estimate of Rs 16,143 crore (0.5 per cent) for 2005-06.