Pranab Mukherjee on Friday set an ambitious target for reducing fiscal deficit by 1.2 per cent in 2010-2011 to 5.5 per cent from the current level of 6.7 per cent of gross domestic product (GDP). Citing his governments commitment to reforms aimed at simplifying taxes and increasing compliance,increasing public ownership of public sector undertakings (PSUs),pruning fertiliser subsidies and re-assessing the administered pricing of petroleum and diesel products,the minister seemed confident of achieving this target in 2010-2011. The medium term fiscal policy (MTFP) statement laid in Parliament suggested reducing fiscal deficit further to 4.8 per cent in 2011-2012 and 4.1 per cent in 2012-13. The MTFP 2010-2011 says that while reduction of fiscal deficit from a high level of 7.9 per cent in 2008-09 to 5.5 per cent 2010-2011 would be possible on the back of expenditure management and proceeds from disinvestment,the target for 2011-12 has been set at 0.8 per cent higher than the MTFP laid in 2009-2010 at 4.8 per cent. This revision has been done to accommodate a higher share of 32 per cent for states in the Centres net taxes as recommended by the Thirteenth Finance Commission (TFC). In 2010-2011 alone an additional Rs 9,800 crore would go to the states on account of the TFC recommendations coming into force. The recommendation to increase the indicative ceiling on total transfers to states on the revenue account from 38 per cent to 39.5 per cent would impact the availability of resources for the Centre,the MTFP states. To keep the economy on the path of fiscal consolidation and increasing revenue,the intent is to simplify the tax structure by way of introducing the direct taxes code and the goods and services tax in April 2011-12. Mukherjee expects greater buoyancy in tax receipts on the back of better compliance and a larger tax base. Direct Tax receipts are expected to improve from 6.2 per cent of GDP in 2010-11 to 6.6 per cent and 7 per cent in 2011-12 and 2012-13 respectively. The minister also expects 28.8 per cent growth in indirect tax collections for 2010-11 over the current fiscal amounting to 4.6 per cent of GDP. With the introduction of GST in 2011-12,this is expected to go up to 4.8 per cent of GDP in 2012-2013. The MTFP also projects a GDP growth rate of 8.5 per cent for both 2010-2011 and 2011-12,which is expected to reach 9 per cent levels in 2012-13. This underlying factor may also account for better revenue receipts for the government helping it limit the fiscal deficit and stick to the FRBM targets set by it. Higher non-tax revenue of Rs 35,000 crore is forecast for 2010-2011 on account of an accretion of Rs 35,000 crore to government coffers from the 3G auction. Non-tax revenue (NTR) is expected to go up 32 per cent in 2010-2011 over 2009-2010 amounting to 2.1 per cent of GDP. However,NTR as a portion of GDP is expected to decline to 1.4 per cent and 1.3 per cent of GDP in 2011-12 and 2012-13 on account of declining financial intermediation from the Centre to states leading to a fall in interest receipts on loans. On capital receipts the government expects to garner Rs 40,000 crore in 2010-2011 by way of disinvestment. About 15 PSUs are slated to go to the bourses this year and the target has been pegged much higher than that of Rs 25,000 crore in 2009-2010. In a bid to create productive assets,the governments plan expenditure is slated to go up by 19.2 per cent to Rs 3,15,125 crore over the plan expenditure on revenue account in 2009-2010. However,it is clear that the expenditure management comes from a complete tightening of non-plan revenue expenditure,which is budgeted to increase a mere 0.26 per cent in 2010-2011 to Rs 6,43,599 crore over Rs 6,41,944 crore in 2009-2010. The government has also projected a decrease in subsidies from Rs 1,23,936 crore (RE) in 2009-2010 to Rs 1,08,667 crore amounting 1.6 per cent of GDP. These figures are based on the assumption that there would be no major variations in international market prices of fertiliser and petroleum products.
