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Economy Survey 2004-05 presented to Parliament today says that Government aims to eliminate revenue deficit by March 2009 and restrict government borrowings within certain limits. The decisions of the States to introduce Value Added Tax(VAT) from April 1 this year marks the culmination of efforts at reforming the domestic trade taxes besides facilitating establishment of a national common market for goods and services. The introduction of Fiscal Responsibility and Budget Management (FRBM) Act, 2003 and VAT are expected to help sustain growth of the economy with stability as envisaged in the National Common Minimum Programme (NCMP).
A number of initiatives had been taken by the Centre and the States to improve the fiscal health of State Governments like medium term fiscal reforms programme, debt swap scheme and lowering of interest on Central loans to States. The revenue deficit of the States is placed at 1.4 per cent of the Gross Domestic Product (GDP) in 2004-05 Budget Estimates. However, the high rate of real GDP growth of 8.5 per cent in 2003-04 had a favourable impact on the revenue mobilisation efforts of the Government.
The Budget for 2004-05 had indicated that the Government would follow a five-year road map to achieve the objectives envisaged in NCMP of bringing about rapid growth with the stability and equity. The reductions in revenue and fiscal deficits budgeted last year are more than the reductions stipulated in the rules framed under the FRBM Act. The rules stipulate minimum reductions of 0.5 percentage points in revenue deficit and 0.3 percentage points of GDP in fiscal deficit. The Budget for 2004-05 aims at 24.6 per cent growth in gross tax revenue at Rs. 3,17,733 crore over 2003-04 (RE).
The year 2003-04 achieved an improvement in the composition of expenditure with revenue expenditure- GDP ratio scaling down to 13.1 per cent and the ratio of capital expenditure to GDP improving to 4 per cent. With the softening of interest rates, as a proportion of GDP, interest payments declined to 4.5 per cent in 2003-04 (RE) and is budgeted at 4.2 per cent in 2004-05. The proportion of interest payments to revenue receipts is budgeted at 41.9 per cent in 2004-05 (BE) showing a decline from 53.4 per cent in 2001-02. As a proportion of total expenditure, subsidies are budgeted to remain at 9.1 per cent in 2004-05. In absolute terms, expenditure on subsidies is budgeted to be about Rs. 43,516 crore against Rs. 44, 709 crore in 2003-04 (RE).
The Central Plan outlay in 2004-05 is budgeted at Rs. 1,63,720 crore which is more by 15.5 per cent over the Revised Estimates for 2003-04. As compared to the Budgeted Plan outlay of Rs. 1,47,893 crore the Revised Estimates for 2003-04 is placed at Rs. 1,41,766 crore. The Central assistance for State Plans has been raised from Rs. 48,660 crore in 2003-04(RE) to Rs. 57,704 crore in 2004-05 marking an increase of 18.6 per cent. Outstanding external debt which was continuously declining from 5.7 per cent of GDP in 1991-92 to 1.7 per cent in 2003-04 is budgeted to 1.8 per cent of GDP at Rs. 55,084 crore in 2004-05.
The survey observes that fiscal consolidation cannot be sustained without the active involvement of States which account for about 39 per cent of revenue receipts and 56 per cent of expenditure. While the consensus reached for the proposed introduction of State level VAT is a welcome step in the move towards harmonising tax structure across States, establishing a national common minimum market for goods and services for the country as a whole would require carrying forward the process of coordination between the Centre and the States. While it is essential to increase the level of expenditure in social sectors and in building productive capacity in economy it is also important to transform the outlays into better outcomes. The aim is to fulfill the NCMP objective of targeting subsidies sharply at the poor, continuing with pension reforms, maintaining a healthy interest regime through lower zonal borrowings, effecting a shift in the compensation of expenditure in favour of plan and capital expenditure and reforms in public service delivery.
HB/SBK/VN
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