Search the Internet          Tips  Sites: Finance, Investment

Tax shortfall seen widening India's 2000-01 fiscal gap

India is likely to overshoot its 2000-01 fiscal deficit target because of lower-than-expected tax revenues, a senior finance ministry official said on Wednesday.

The revenue shortfall is seen pushing the deficit "closer to 5.3 per cent" of GDP from an earlier estimated 5.1 per cent, Expenditure Secretary C M Vasudev told Reuters in an interview.

The deficit would be just slightly below the 5.4 per cent of GDP posted in 1999/2000. It has been targeted at 4.7 per cent for 2001-02 (April-March).

"Final figures are yet to come but the tax shortfall is expected to be Rs 80 billion plus," Expenditure Secretary C M Vasudev told Reuters in an interview.

India's tax receipts have fallen over the past months due to a deep industrial slowdown after displaying robust growth.

In February, Finance Minister Yashwant Sinha pegged net tax revenues at Rs 1444.03 billion, about Rs 18 billion lower than the earlier estimate for 2000-01.

"Uncertainty in tax collections linked with the slowdown in industrial production have had an impact," Vasudev said.

To lower the stubbornly high deficit, Sinha has introduced legislation to cut the deficit to two per cent of gross domestic product in five years.

STRICT CHECK ON EXPENDITURE

Analysts say the main factor behind the failure to achieve the 5.1 per cent deficit target in 2000/01 was runaway government spending.

But Vasudev said the government saved Rs 40 to Rs 50 billion in 2000-01 from expected spending. The major savings was from the defence sector, estimated at Rs 30 to Rs 40 billion.

He said he was confident the government would keep a tight leash on spending this year as government departments had been told to follow a strict three-month cash management schedule.

But analysts were sceptical about the government's ability to meet its 4.7 per cent fiscal deficit target this year in light of such factors as the economic slowdown and the removal of tax surcharges on income paid by individuals and companies.

"It looks like the government has made some very aggressive projections," said M R Madhavan, research head at Bank of America in Bombay.

Vasudev said large market borrowing by the government in April was not due to any spending overrun from the previous year.

The amount raised so far by the government is slightly more than 25 per cent of its gross market borrowings of Rs 1.19 trillion targeted for the current financial year.

"Borrowing is always heavy in April and May," Vasudev said, adding borrowings would "even out" in the months ahead.

The government raised Rs 302.5 billion in April through market borrowings and private placements with the central bank, more than double the Rs 125 billion raised in April last year.

Tell us what you think of this report