X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Govt. Finances: Need more control - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Feb 27, 2003

    Govt. Finances: Need more control

    On the face of it, the economic survey, which was tabled in the Parliament today, seems better than last year. It seems that up till now, the government has been able to keep the fiscal deficit under control. The budget estimates for 2002-03 put our fiscal deficit at 5.5% of GDP, which has come down from the provisional government figure of 5.9% of GDP for 2001-02. However, the government has once again missed its budgeted target of 5.3% for FY03. Moreover, the fiscal deficit situation is still not within desirable levels. Various factors that have contributed to the huge deficits are factors like increase in expenditure on administration, subsidies and interest payments.

    Revenues: Better Off…
      April-December % change % of budgeted
    for FY03
    Rs bn 2001-02 2002-03    
    Total Revenue Receipts 1,327 1,505 13.4% 61.4
    - Tax Revenues 850 1,038 22.2% 60.0
    - Non Tax Revenues 477 466 -2.2% 64.7
    Total Capital Receipts 1,010 1,050 3.9% 63.6
    - Recovery of loans 117 156 33.1% 88.3
    - Disinvestment receipts 3 31 1,015.0% 26.0
    - Others 890 863 -3.1% 63.7
    Total Receipts 2,337 2,555 9.3% 62.3
    Source: Economic Survey 2003

    However, it seems that the government is moving in the right direction. The efforts of the government at improving the tax to GDP ratio have finally paid off to some extent. The tax to GDP ratio has gone up from 8.1% in FY02 (provisional) to 9.6% in FY03 (budget estimates). The contribution of direct taxes has gone up from 3% to 3.7% of GDP YoY. Indirect taxes grew from 5.1% in FY02 to 5.8% in FY03. As can be seen in the table above, tax revenues have showed a robust increase of 22% in the nine-months ending December 2002 as compared to the same period last year. This growth helped improve the tax to GDP ratio.

    However, the total revenues receipts for the period April – December 2002 are only 61.4% of the targeted Rs 2,451 bn for FY03. So the government has a lot of catching up to do. Apart from revenue receipts, the government has also missed out on its other targets, such as income from disinvestment. Out of the targeted Rs 120 bn for FY03, the government realised a measly Rs 31 bn (or just 25%) in the first nine months of FY03.

    The Economic Survey notes that the services industry is still largely out of the tax net. The services industry forms almost 50% of India's GDP. With the proposed extension of service tax, the tax to GDP ratio is likely to improve going forward.

    Expenditure: Expensive affair…
      April-December % change % of budgeted
    for FY03
    Rs bn 2001-02 2002-03    
    Non-Plan Expenditure 1,718 1,910 11.2% 64.4
    - Revenue Account 1,611 1,805 12.0% 66.8
    - Capital Account 106 106 -0.9% 39.6
    Plan Expenditure 619 645 4.1% 56.8
    - Revenue Account 381 380 -0.2% 54.1
    - Capital Account 238 264 11.0% 61.2
    Total Expenditure 2,337 2,555 9.3% 62.3
    Source: Economic Survey 2003

    The government’s performance on the expenditure front is not exactly what a developing nation like India would desire. It can be seen from the table above that the non-plan expenditure increased 11% YoY, vis-à-vis’ a 4% rise in the plan expenditure. The situation should ideally be reverse, with higher spending on plan expenditure. However, credit must be given to the government that within the plan expenditure, spending was higher on the capital account, which implies expenses incurred on creating infrastructure rather than just maintaining the current infrastructure.

    Non-Plan Revenue Expenditure: Needs some planning…
      April-December % change % of budgeted
    for FY03
    Rs bn 2001-02 2002-03    
    Non-Plan Revenue Expenditure 1,611 1,805 12.0% 66.8
    - Interest payments 720 735 2.1% 62.6
    - Major subsidies 160 294 84.1% 75.5
    - Pensions 94 96 3.1% 64.2
    Source: Economic Survey 2003

    Non-plan revenue expenditure saw a 12% growth in April-December 2002. Subsidies played truant (up 84% YoY) during the period. The dismantling of the administered price mechanism (APM) for petroleum products post March 2002 was largely responsible for this spurt in subsidies. Budget 2002-03 had made an explicit provision of Rs 65 bn towards payment of subsidies for domestic LPG and also for kerosene supplied through public distribution system coupled with freight subsidy for remote areas. The interest component continues to remain high due to the fact that high fiscal deficits force the government to borrow more from the market to meet the deficits.

    To summarise, on one hand, while the government is most likely to miss the target of curtailing the fiscal deficit, on the other, faint signs of improvement in managing the economic affairs are visible. Rise in contribution of taxes to the government revenues and a control on the expenditure front is likely to augur well for the government going forward. Moreover, with the likelihood of services coming under the tax net and government’s intentions of increasing capital spends on infrastructure should help improve the economic situation.

    One just hopes that the government doesn’t go overboard with populism when it presents Budget 2003-04 tomorrow. If it does, then whatever slow progress we seem to have made till now will be sacrificed on the altar of politics.

     

     

    Equitymaster requests your view! Post a comment on "Govt. Finances: Need more control". Click here!

      
     

    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    MARKET STATS