Feb 3, 2004|
Deficit under control?
The finance minister introduced the interim budget in the parliament today. While the measures were not that significant, it has been an extension of few earlier policy decisions. However, the finance minister has shied away from taking bolder economic reforms that may be required to sustain growth at the 7%-7.5% level. Some sectors like sugar, shipping and power have been given sops. Rural and small-scale industries are likely to benefit more from the sops the government has announced towards credit to this sector. In the backdrop of the new budget, let us examine how the government has done as far as its own accounts are concerned.
One of the most important issues facing the country currently is that of fiscal deficit. On this front, the government has been drawing a lot of criticism as the fiscal deficit (as a percentage of total GDP) has been witnessing an unhealthy rise. For FY04 however, the government seems to have stemmed the tide. Or so it seems! For FY04, the government estimates that the fiscal deficit would be reigned in at 4.8%. While this may in part be due to better tax collections, the government has also 'assumed' large proceeds from disinvestments to arrive at this figure.
If one were to look at the government's revenues, we would notice that non-tax revenues have slid during the year as compared to budget estimates. The other two heads of tax revenues and disinvestments receipts for the year have seen an improvement during FY04. However, we must point out that disinvestment revenues for FY04 include the sale proceeds of a minority 10% stake in ONGC and GAIL, which is yet to materialize! This means that if the sale proceeds are not realised in the current year, then the fiscal deficit calculations can be drastically altered. Based on current prices, sale of minority stake in GAIL and ONGC would fetch Rs 116 bn. If the government fails to complete this process, then fiscal deficit as a percentage of GDP could touch 5.2%. Incidentally only Rs 13.4 bn has been realised in FY04 from disinvestments (Source: Ministry of Disinvestment website).
For FY05, the targets for fiscal deficit are even more aggressive at 4.4% of GDP. Considering that the government has been able to garner higher tax revenues (better compared to budgeted estimates in FY04), if the momentum in the economy continues, tax receipts could rise further. However, what is concerning is that the government still continues to rely on disinvestments proceeds to bring deficit under control, rather than keeping a check on its expenditure bill and widening the tax base (mainly on its huge work force). For FY05, the government has targeted disinvestments proceeds to the tune of Rs 160 bn. While all the indicators are pointing towards sustenance of GDP growth in the region of 6%-6.5% in FY05 (provided monsoons are normal), the need of the hour (as far as the government is concerned) is to prune its workforce and increase the tax base rather than rely on uncertain sources (disinvestments) of revenues to bring its deficit under control.
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