FRBM targets get stretched

The Centre intends to resume its efforts towards targeting a 0.7 per cent reduction in revenue deficit in 2006-07 and hopes to wipe it out completely by 2008-09.

Similarly, fiscal deficit is to be reduced by 0.5 per cent to 3.8 per cent of the GDP at the end of 2006-07, followed by a 3.1 per cent reduction the next year.

The Fiscal Reforms & Budget Management Act binds the government to reducing revenue deficit by 0.5 per cent annually and fiscal deficit by 0.3 per cent. With a liability of Rs 26,000 crore (Rs 260 billion) on account of the recommendations of the Twelfth Finance Commission and a Rs 25,000 crore (Rs 250 billion) outgo for social sector schemes, the government is falling short of the targets.

Apart from tax reforms aimed at doing away with exemptions, reducing compliance costs, enhancing computerisation and encouraging compliance, the Centre's strategy is also to limit guarantees, mainly to external loans from multilateral agencies, to contain its contingent liability.

It also proposes an overhaul of the expenditure management system which will include the new 'General Financial Rules' to be brought into force in July, aimed at greater delegation of authority to administrative ministries in managing their financial affairs.

As part of a move towards quarterly budgeting, the finance ministry also intends to set quarterly ceilings and targets for spending and revenue collection.

Also, the mechanism for release of funds is being reworked with ministries being asked to obtain expenditure statements and utilisation and audit certificates before June 30, 2005.

State governments will also be asked to furnish monthly expenditure returns for centrally sponsored schemes. Each district-level autonomous body receiving funds in excess of Rs 10 crore (Rs 100 million) will have to open separate bank accounts, and arrangements will be made to have central budgetary allocations transferred electronically. This system is expected to be in place in December.

Central ministries will also be required to release a summary of their monthly receipts and expenses, and a drive to clear arrears is to be undertaken. During the course of the year, the finance ministry and the Planning Commission propose to identify schemes with small allocations, which do not make discernible impact on the ground.

Restructuring of subsidies along with a review of user charges is also on the cards.

The Budget statement before Parliament also said the revenue deficit target for 2005-06 would have been met had the government not provided Rs 5,000 crore (Rs 50 billion) for potential revenue loss from the value-added tax. While the move is aimed at providing a cushion to states, in the absence of the provision, the government would have ended the year with a revenue deficit of 2.6 per cent of the GDP.

The cost of implementing the 12th Finance Commission's recommendations is estimated at twice the cost of the fifth pay commission award and the Centre hopes to adjust to the new devolution and financing scheme in the next fiscal.

"Thereafter, revenue buoyancy and tax reforms will enable the government to resume the process of fiscal correction with effect from 2006-07 and achieve the FRBM goals by 2008-09," the statement said.