The government today said it would opt for a debt reduction strategy that seeks to improve upon the target set by the 13th Finance Commission.
According to the road map released by the finance ministry this evening, the Centre will lower the level of debt and liabilities as a proportion of gross domestic product (GDP) to 43 per cent by 2014-15, as against 50.5 per cent at the end of the last financial year.
The Finance Commission had suggested the Centre lower its debt to 45 per cent of GDP.
In addition, the combined debt of the Centre and the states is projected to be lowered to 64.9 per cent by the end of 2014-15, as against 73 per cent last year.
It said there was an option to have a larger deficit than what was recommended by the Finance Commission and yet achieve the prescribed target, but the government opted for a debt reduction strategy in line with the commitments made under the Medium Term Fiscal Policy Statement. This will help keep interest rates under check.
At the same time, the government warned of risks, which included resuming the practice of issuing securities in lieu of subsidies. The other risk arose from over financing of deficit. “This may happen if the market borrowings are not adjusted according to the flow of funds through automatic route, such as reinvestment of redemption proceeds against securities issued towards the National Small Savings Fund,” the paper said.
| THE ROAD AHEAD | ||||||
| As % of GDP | 2009-10 | 2010-11 | 2011-12 | 2012-13 | 2013-14 | 2014-15 |
| Assumptions & projections | ||||||
| Gross tax revenue | 10.8 | 11.5 | 11.8 | 12.0 | 12.2 | |
| Non-tax revenue | 2.1 | 1.6 | 1.5 | 1.5 | 1.4 | |
| Non-debt capital receipts | 0.7 | 0.6 | 0.5 | 0.3 | 0.3 | |
| Total expenditure | 16.0 | 15.3 | 14.7 | 14.0 | 13.5 | |
| Nominal GDP growth (%) | 12.5 | 13.0 | 13.5 | 13.5 | 13.5 | |
| Centre’s road map | ||||||
| Fiscal deficit | 6.6 | 5.5 | 4.8 | 4.1 | 3.5 | 3.0 |
| Debt & liabilities | 50.5 | 50.3 | 49.3 | 47.6 | 45.4 | 43.0 |
| Govt’s debt & liability road map | ||||||
| Centre’s debt | 50.5 | 50.3 | 49.3 | 47.6 | 45.4 | 43.0 |
| States’ debt | 24.8 | 24.6 | 24.3 | 23.9 | 23.4 | 23.1 |
| Outstanding central loans to states | 2.3 | 2.0 | 1.8 | 1.6 | 1.4 | 1.2 |
| General govt debt | 73.0 | 72.9 | 71.8 | 69.9 | 67.4 | 64.9 |
| Note: Net liabilities under the market stabilisation scheme and the National Small Savings Fund not used for financing the Centre’s deficit with external debt at current exchange rate States' debt is net of 14-day Treasury Bills investment The value of outstanding central loans to states has been taken as a constant in the coming years Source: Finance Ministry | ||||||
The finance ministry also said the fiscal deficit level could be higher, as there was uncertainty surrounding the denominator (GDP). It said growth could be lower, as recovery in the global economy remained fragile. “This would result in lower GDP growth and may lead to lower tax revenue growth.”
The report talked about reduction in the overall cost of borrowing by gradually reducing deficit financing requirement in the medium term. The government plans to borrow a record Rs 4,57,000 crore this year (2010-11), of which Rs 1,19,000 crore remains to be raised by March.
The document also talked about expenditure compression by controlling the growth in subsidy-related expenditure and lower growth in salary, pension and interest related expenditure.
The report pointed out that interest payment as percentage of net tax revenue to the Centre could also be brought down to the level of 2007-08, before the financial crisis hit the global economy, by 2013-14 and to 36.5 per cent by 2014-15.
