Government's finances are under control

When the government presented the Budget 2010-11 in February this year against the backdrop of Indian economy emerging out of global slowdown by posting a 7.4 per cent growth in 2009-10, the main  objective was to put the economy back on high growth path while curbing fiscal extravagance without hurting growth momentum.

This revival in the Indian economy, no doubt, has been aided by various fiscal and stimulus packages including tax cuts to obviate the adverse effect of the global financial and economic crisis in 2008-09.To bring in fiscal discipline the Budget 2010-11 had enumerated the path for fiscal consolidation in the medium term and the process started with reduction in estimated fiscal deficit—the net difference between government expenditure and income—to 5.5 per cent of Gross Domestic Product (GDP) in current fiscal from a level of 6.6 per cent in 2009-10.

Against this backdrop a review of fiscal performance of the economy in terms of revenue receipts and expenditure during the first seven months of the current fiscal (April to October, 2010), projects an efficient management.

Just sample the following: the latest available data show Center’s fiscal deficit narrowed by 33.76 per cent year-on-year to Rs 1.62 lakh crore in April-October, 2010, on the back of better-than-expected revenue generation from the sale of spectrum and robust tax collections. In comparison, Center’s fiscal deficit stood at Rs 2.45 lakh crore in the corresponding period of the previous financial year.

The net revenue collection through direct tax , which primarily comprise income tax and corporate tax, surged by 17.85 per cent to Rs 2.16 lakh crore during April-November this year compared to the same period last fiscal, thereby crossing the 50 per cent of the full year target.

During April-November 2009, net direct tax collection stood at Rs 1.83 lakh crore. The surge in direct tax collection reflects the expansion in economic activities in the wake of ongoing buoyancy in the economy.

On the other hand, the revenue collection through indirect tax, which comprises central excise, customs duty and service tax, has risen by an impressive 42.3 per cent to Rs 2.07 lakh crore during April-November this year as compared to corresponding period last year, indicating a distinctive expansion in economic activities. In the current year, indirect tax collections during April-November constitute 66 per cent of the overall target of Rs 3.13 lakh crore fixed for 2010-11.

Significantly, of all indirect taxes collection of customs duty saw the most impressive growth rate. The revenue collections from customs have increased to Rs 86,844 crore during April-November 2010, which is 67 per cent higher than the previous year’s collections of Rs 52,011 crore in the same period. One of the reasons was the restoration of customs duty on crude oil as well as finished petroleum products like petrol and diesel. On top of that there has been an upsurge in oil prices and import of crude oil.

The mop up from central excise also rose to Rs 81,984 crore during the period April-November 2010, an increase of 34.4 per cent over the previous year’s collection of Rs 61,020 crore during the same period. Collection of service tax was 18 per cent higher at Rs 38,927 crore. Even the advance tax payment by the top 100 companies for the October-December period grew 18 per cent over last year.

Advance tax payment is a staggered system of paying taxes and is generally seen as a barometer of a particular company’s performance as the tax payments are made in line with profit expectations.

The government’s non-tax revenue in April-October 2010 too was much higher. It stood at Rs 1.48 lakh crore, higher than the budget estimate for the entire fiscal, primarily because of higher realisation from the auction of telecom spectrum, which raked in approximately Rs 106,000 crore. 

With subsidies and non-plan expenditures ruling high, the government’s expenditure also rose by 15 per cent during April-October, 2010 to Rs 6.17 lakh crore from over Rs 5.36 lakh crore in the year-ago period. At Rs 1.62 lakh crore, the fiscal deficit (the gap between income and expenditure) in April-October, 2010, amounted to 43 per cent of the budget estimate of Rs 3.81 lakh crore for the entire 2010-11. This time last year, the fiscal deficit was 61per cent of the Budget estimate for the entire 2009-10 financial year.
Pointed out Chief Economic Adviser in the Finance Ministry Kaushik Basu “we are quite sure of not exceeding the fiscal deficit target set for the current fiscal. We have set the fiscal deficit target at 5.5 per cent of the GDP in the current fiscal 2010-11. We not only hope to meet this target but may do marginally better than that.”

Still one has to keep fingers crossed as to whether the government will stick to fiscal deficit target in view of its proposal to step up expenditure. The government recently  got parliamentary sanction for spending an additional Rs 54,000 crore over the Budget estimate and for additional expenditure of another Rs 20,000 crore. It is feared that these proposed additional expenditure would drain out all the extra money garnered from the spectrum auction.