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The government remains committed to fiscal consolidation.
The Economic Survey 2014-15 presented in Parliament on Friday states that the deficit target of 4.1% as envisaged in the Budget 2014-15 will be met.
However, should the revenues not pick-up sufficiently, there would be need to persist with some compression in expenditure so as to meet the deficit target.
It says that achieving the target is a daunting task in the backdrop of only a moderate increase in indirect taxes and a large subsidy bill despite significant decline in the oil subsidies burden in the current year.
The Economic Survey mentions that enhanced revenue generation is a priority.
The fiscal consolidation plan as enunciated in Budget Estimates for 2014-15 entailed an increase in the tax to GDP ratio and non-debt receipts to GDP ratio to 10.6 per cent and 9.8 per cent respectively, and a continuance of the low level of total expenditure to GDP ratio at 13.9 per cent.
The envisaged growth for Gross Tax Revenue was 17.7 per cent over RE 2013-14 and 19.8 per cent over the Provisional Account 2013-14.
Economic Survey states that the Budget for 2014-15 estimated GDP growth rate of 13.4% and growth in overall gross tax revenue at 19.8% over the last year but this seems to be an overestimation, given the trends in GDP growth and growth in GTR.
Several important and path breaking initiative for reviving the economy and promoting investment in the manufacturing sector were taken, and measures for rationalization of tax provision so as to reduce litigation were introduced.
Modernization of business processes of tax administration are being under taken in order to raise revenue and improve the ease of doing business.
The Economic Survey says in the current financial, the Government has disinvested its equity in SAIL, Coal India and others and realized about Rs 24,000 crore (Rs 240 billion) so far.
The recovery of loans has been declining because of the Finance Commission’s recommendations.
In 2014-15, the centrally sponsored schemes were restructured into 66 programmes for greater synergy and effective implementations.
Central assistance to states and Union Territories for their plans increased from Rs 1.1 lakh crore (Rs 1.1 trillion) in RE 2013-14 to Rs 3.38 lakh crore (Rs 3.38 trillion) in BE 2014-15.
The energy, transport, social service, and industry and mineral sectors got the maximum share in the central plan of 2014-15.
Non plan expenditure constituted around 68% of total expenditure in BE 2014-15.
Expenditure like interest payment, subsidies, defence service, pension, and non plan revenue expenditure constituted around 87.4% of total non plan revenue expenditure in BE 2014-15.
The rationalization and re-prioritization of non-plan revenue expenditure is expected to play a vital role in the process of fiscal consolidation and targeting expenditure more towards inclusive and sustained development.
Among the subsidies, the under-recoveries on petroleum product are expected to be Rs 74,664 crore (Rs 746.64 billion) during 2014-15 against Rs 1,39,869 crore (Rs 1,398.69 billion) in 2013-14.
The Survey says that rationalisation of food subsidies is still an area where more effort is required.
The provisional outcome of April-December 2014-15 was released on January 30, 2015 by CGA. Fiscal deficit stood at Rs 5.32 lakh crore (Rs 5.32 trillion) which is 100.2 per cent of BE and higher than the last five years average of 77.7 per cent.
The revenue deficit for April-December 2014 is estimated at 106.2% of BE.
This implies that for fiscal marksmanship this year too some expenditure compression may have to be undertaken.
In order to obviate the need for large scale expenditure reduction, the Government has however put in place some additional revenue mobilization efforts.
The growth in gross tax revenue increased by 7% in comparison to the corresponding period of 2013-14.
Budget 2015: Complete Coverage
The non-tax revenue during the period registered an increase of 27.3% over the same period of last year.
On the expenditure side of Union government account, the notable trends during April-December 2014 include a shortfall in growth in Plan and non-Plan expenditure vis-à-vis the corresponding period of the previous year.
Indirect taxes growth at 6.2 % in 2014-15 (April-December) is much lower than 25.8% over the corresponding period of 2013-14.
Direct taxes collected in the first 9 months in the year are broadly in the same level as in the corresponding period of the last year. 6.2% growth at expenditure in April–December 2014 over the corresponding period in the previous year has helped in containing fiscal deficit for the first three quarters of the current fiscal.
The Economic Survey says that going forward, enhanced revenue generation is a priority.
The implementation of a well-designed goods and services tax (and other tax reforms would also play the crucial role in this regard.
Overhauling the subsidy regime which should entail further reducing fuel (LPG and kerosene) subsidies, tackling fertilizer subsidies, moving to Aadhaar based direct cash transfers of food subsidy would pave the way for expenditure rationalisation.
Fiscal consolidation is a necessity but the quality of consolidation is imperative to make it sustainable.
To achieve this end it would be necessary put in place a medium to long term fiscal policy frame work with explicit revenue, expenditure and deficit target.
Text: Kind courtesy, PIB; Image: A bank staff counts money. Photograph: Reuters