Sunil Jain: Healthy fisc

PERSPECTIVES

Along with the healthy growth in both manufacturing and services, the other good news is that the fisc is dramatically better already "" the combined fiscal deficit of the Centre and the states is down from 9.4 per cent of GDP in 1990-91 to a projected 6.5 per cent in 2006-07. In the case of the Centre, the declining ratio of the revenue deficit-to-fiscal deficit also means that the deficit is finally doing a lot more of what it was originally supposed to do, that is, finance more capital expenditure by the government. The reason for this, credit rating firm Crisil argues in its latest EcoView, is a fairly significant increase in tax buoyancy. This is the result of a number of steps taken by the government to broaden the tax base by bringing in new services into the tax net, implementation of VAT, and making the use of PAN compulsory for some transactions. While tax buoyancy has risen for indirect taxes as well, excise remains the joker in the pack, and growth in collections is far below industrial growth. This is the FM's big Budget challenge. 
 

Buoyancy of central taxes is rising
	Gross tax	Direct tax		Indirect tax
		Corporate  tax	Income  tax	Customs+ Excise
1993-94 to 1996-97	1.2	1.4	1.5	1.1
1997-98 to 2001-02	0.8	1.6	1.4	0.6
2002-03 to 2005-06	1.5	2.4	1.5	0.9