Govt borrowings to see sharp cuts

The dependence on borrowings by central and state governments to finance their Plan expenditure will drastically come down during the Eleventh Five-Year Plan period (2007-12) on the back of revenue buoyancy and fiscal prudence.

The dependence is expected to come down to 38.9 per cent of total Plan resources compared with 73.9 per cent during the Tenth Plan period (2002-07).

"This is the result of tighter fiscal discipline imposed by the fiscal responsibility framework ... and an optimistic revenue outlook driven by the buoyancy in revenue collections during the last three years of the 10th Plan," the 11th Plan document points out.

According to the Planning Commission estimates, the balance from current revenues will grow to Rs 10,39,039 crore during the 11th Plan from a deficit of Rs 1,58,888 crore in the previous Plan. State governments' own resources are also expected to rise faster.

"This is great news. This means the debt-to-GDP ratio and fiscal deficit will substantially come down. Interest payments will also drop as the government's market borrowings fall," said Rajiv Kumar, director, Indian Council for Research on International Economic Relations (Icrier).

Riding a buoyant economy and better tax compliance, gross tax revenue collections are already expected to surpass the Rs 6,00,000-crore mark in 2007-08 as against the Budget estimate of Rs 5,48,122 crore.

This means doubling of tax revenues in three years, up from Rs 3,04,958 crore in 2004-05.

The measures taken by central and state governments to reduce their deficits have also yielded result. All state governments, except Sikkim and West Bengal, have enacted fiscal responsibility legislation (FRL).

Although there are variations across states in targets and the time-frame for achieving them, most legislation have stipulated elimination of revenue deficit by March 2009 and reduction of fiscal deficit to 3 per cent of gross state domestic product by March 31, 2010. This is in line with the target prescribed by the 12th Finance Commission.

The central government has also targeted eliminating revenue deficit to zero and reducing fiscal deficit to 3 per cent by March 2009, according to the Fiscal Responsibility and Budget Management Act.