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Data on central receipts and expenditure so far in the current year (April- July) suggest that the prospects of bringing down fiscal deficit from last year's high (described as "unacceptable" by the finance minister) are pretty dim. The fiscal deficit for the first four months of the current fiscal was a staggering 28 per cent more than in the corresponding period of the last fiscal; at Rs 54,354 crore, this is more than a half of the deficit targeted (Rs 1,04,955 crore) for 1999-2000.
The receipts and expenditure numbers might not remain quite as discouraging in the coming eight months, but it is futile to expect that the budget target of reducing the fiscal deficit (including small savings) to 5.2 per cent of GDP from 5.9 per cent last year can be achieved. The best that can be hoped is that the deficit as a proportion of GDP will be no higher than it was last year.
The fiscal correction proposed by Yahwant Sinha relied on slowing down the growth of revenue expenditure to 8.6 per cent from 21.6 per cent last year. Going by budget estimates, the growth of subsidies was to be reined in to 6.5 per cent (from 15.5 per cent), of interest payment on public debt to 13.9 per cent (from 17.7 per cent), and of defence (revenue) expenditure to 7.9 per cent (from 18.8 per cent). Kargil was not on the cards; the war has bloated defence expenditure.
Precious little has been done to choke the growth of subsidies. Consequently, public debt will increase by more than has been visualised. This is hardly propitious for slowing the outgo on public debt. The recent decline in interest on government paper cannot be sustained for long. The cumulative impact of all this will be to boost the fiscal deficit, an early indication of which has come from the April-July numbers on government finances.
Overall, things are very much as they were last year; Kargil has blighted the scenario but there is the compensation of a projected rise in industrial production (which should result in improved tax revenues). The fiscal deficit should not then rise above last year's proportion of the GDP. By how much can it be brought down if a Kargil tax, first hinted at by Sinha, is imposed? Note that this will come on top of the Rs 9,334-crore revenue mobilisation through this year's rises in taxes (inter alia) on incomes and excise duties.
It will be difficult for a new government to come out with more than a nominal tax; and this will only garner revenues during the remaining six months of the fiscal. This apart, new taxation may scotch the as yet nascent industrial recovery. A Kargil tax can only make a marginal difference to the high fiscal deficit. The alternative of acting on subsidies (raising administered prices), presumably deferred by the general election, will not exactly add to the popularity of the new government.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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