IV. Government Finances (Part 1 of 2) - আরবিআই - Reserve Bank of India
IV. Government Finances (Part 1 of 2)
Central Government Finance,2002-03
State Government Finances,2002-032
Combined Budgetary Position of the Center and States
4.1 The slowing of economic activity due to the drought impacted on public finances in 2002-03. In the revised estimates, the combined gross fiscal deficit of the Centre and States overshot its budgeted level by more than one per cent of GDP on account of the shortfall in tax revenue and disinvestment from budget estimates. Furthermore, the imperatives for food supply management in the context of the drought necessitated fiscal support in the form of higher food subsidies, which surged back almost to 1991-92 level as a proportion to GDP. Despite these setbacks, there were distinct gains in expenditure management. The Centre reined in its expenditure by pruning non-plan spending. On the other hand, the States' expenditure exceeded budget estimates, but this was mainly in the form of a spurt in capital expenditure towards debt consolidation. Importantly, States were able to contain the revenue expenditure around the budgeted level. Notwithstanding these modest successes in expenditure containment, the slippages from the budgetary projections underscore the deterioration in the quality of fiscal adjustment.
4.2 The tax-GDP ratio has been losing buoyancy over the 1990s, falling by more than two per cent of GDP by the year 2001-02 from the level attained in the late 1980s. This imparts urgency to reforms in the tax regime in the form of simplification of rules, widening the tax base, reviewing exemptions and improving compliance. The surge in interest payments following reforms in budgetary financing has continued unabated, and it is only in 2002-03 that some moderation in pace has set in. The steady improvement in the primary deficit coupled with fall in capital outlay during the 1990s indicates that the burden of the unrelenting expansion in interest outgoes has devolved on productive elements of fiscal spending. The overarching priority attached to reduction of expenditure to meet deficit targets has accentuated the erosion of capital outlays with serious implications for expanding the productive capacity of the economy in the future. Expenditure on subsidies has remained impervious to fiscal adjustment, while spending on social infrastructure continues to remain low. Large gaps in disinvestment have intensified the fiscal stress. Reflecting these adverse developments, the debt-GDP ratio has been climbing since the second half of the 1990s and is expected to touch 77 per cent of GDP by the end of March 2004. Moreover, the monotonic rise in public debt has eroded the Government sector’s ability to generate savings and to service its internal debt. The 'quality' of the fiscal deficit has worsened, with the revenue deficit having increased substantially indicating that a larger share of borrowed fund is pre-empted by consumption expenditure. (Table 4.1).
|
|||||
Items |
2003-04 |
2002-03 |
2001-02 |
1995-96 |
1990-91 |
(BE) |
(RE) |
||||
|
|||||
1 |
2 |
3 |
4 |
5 |
6 |
|
|||||
(Per cent of GDP) |
|||||
|
|||||
Quantitative Indicators |
|||||
Gross Fiscal Deficit |
9.2 |
10.1 |
9.9 |
6.5 |
9.4 |
Revenue Deficit |
5.9 |
6.7 |
6.9 |
3.2 |
4.2 |
Primary Deficit |
2.8 |
3.6 |
3.7 |
1.6 |
5.0 |
Qualitative Indicators |
|||||
Revenue Receipts |
19.0 |
19.1 |
17.4 |
18.3 |
18.6 |
Tax Revenue |
15.1 |
14.9 |
13.7 |
14.7 |
15.4 |
Direct Taxes |
4.3 |
4.2 |
3.6 |
3.5 |
2.5 |
Indirect Taxes |
10.8 |
10.7 |
10.1 |
11.2 |
12.9 |
Total Expenditure |
29.6 |
30.4 |
28.5 |
25.6 |
28.8 |
Developmental |
|||||
Expenditure |
14.6 |
15.4 |
14.3 |
13.9 |
17.4 |
Non-developmental |
15.0 |
15.1 |
14.1 |
11.6 |
11.4 |
Expenditure |
|||||
Interest Payments |
6.4 |
6.5 |
6.2 |
5.0 |
4.4 |
Debt |
76.9 |
75.5 |
71.1 |
58.0 |
61.7 |
|
|||||
(Per cent) |
|||||
|
|||||
Capital Outlay/ |
|||||
Total Expenditure |
11.2 |
9.6 |
9.0 |
10.7 |
13.1 |
Interest Payments/ |
|||||
Revenue Receipts |
33.7 |
34.0 |
35.6 |
27.2 |
23.6 |
Revenue Deficit/ |
|||||
GFD |
64.0 |
66.7 |
70.4 |
48.8 |
44.6 |
|
|||||
Note : All indicators are based on combined data of the Centre and States. For States, data are provisional for the years 2001-02 onwards. |
CENTRAL GOVERNMENT FINANCES, 2002-03
Expenditure Management
4.3 Expenditure management strategies put in place by the Centre since the second half of the 1990s have begun to yield room for fiscal manoeuvre, notwithstanding the slippages in terms of deficit indicators in the recent years. Despite additional expenditure on account of drought relief and Plan allocations, cuts in non-Plan expenditure enabled a reduction in overall spending (as per revised estimates vis-à-vis budget estimates) by the Centre in 2002-03. The reduction in non-Plan expenditure was on account of lower defence spending, reduced interest payments due to softening in the interest rate on Government securities, lower outgo on pension as well as grants and loans to States and UTs due to non-utilisation of funds under the 'Fiscal Incentive Fund'. The expenditure on subsidies, however, increased significantly during 2002-03 reflecting the impact of dismantling of the Administered Price Mechanism (APM) for petroleum products as also the increase in food subsidy on account of drought conditions. Till the dismantling of the APM, subsidies on various petroleum products were absorbed in the oil pool account. With the discontinuance of the latter since 2002-03, the subsidies for domestic Liquefied Petroleum Gas (LPG), Public Distribution System (PDS) kerosene and freight for far flung areas now fall on the budget (Table 4.2).
(Rupees crore) |
|||||||||
|
|||||||||
2002-03 |
2002-03 |
2001-02 |
1995-96 |
1990-91 |
Variation between RE |
||||
(RE) |
(BE) |
and BE (2002-03) |
|||||||
Amount |
Per cent |
||||||||
|
|||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
||
|
|||||||||
Total Expenditure |
4,04,013 |
4,10,309 |
3,62,453 |
1,78,275 |
1,05,298 |
-6,296 |
-1.5 |
||
(1+2=3+4) |
(16.3) |
(16.0) |
(15.8) |
(15.0) |
(18.5) |
||||
1. |
Non-Plan Expenditure |
2,89,924 |
2,96,809 |
2,61,259 |
1,31,901 |
76,933 |
-6,885 |
-2.3 |
|
of which: |
(11.7) |
(11.6) |
(11.4) |
(11.1) |
(13.5) |
||||
Interest Payments |
1,15,663 |
1,17,390 |
1,07,460 |
50,045 |
21,498 |
-1,727 |
-1.5 |
||
(4.7) |
(4.6) |
(4.7) |
(4.2) |
(3.8) |
|||||
Defence |
56,000 |
65,000 |
54,266 |
26,856 |
15,426 |
-9,000 |
-13.8 |
||
(2.3) |
(2.5) |
(2.4) |
(2.3) |
(2.7) |
|||||
Subsidies |
44,618 |
39,801 |
31,207 |
12,666 |
12,158 |
4,817 |
12.1 |
||
(1.8) |
(1.6) |
(1.4) |
(1.1) |
(2.1) |
|||||
2. |
Plan Expenditure |
1,14,089 |
1,13,500 |
1,01,194 |
46,374 |
28,365 |
589 |
0.5 |
|
(4.6) |
(4.4) |
(4.4) |
(3.9) |
(5.0) |
|||||
3. |
Revenue Expenditure |
3,41,648 |
3,40,482 |
3,01,611 |
1,39,861 |
73,516 |
1,166 |
0.3 |
|
(13.8) |
(13.3) |
(13.1) |
(11.8) |
(12.9) |
|||||
4. |
Capital Expenditure@ |
62,365 |
69,827 |
60,842 |
38,414 |
31,782 |
-7,462 |
-10.7 |
|
(2.5) |
(2.7) |
(2.6) |
(3.2) |
(5.6) |
|||||
|
|||||||||
RE : Revised Estimates. |
BE : Budget Estimates. |
||||||||
@ Includes capital outlays and loans and advances. |
|||||||||
Note : Figures in brackets are per cent of GDP. |
4.4 The gains in expenditure restraint, albeit limited, have strengthened the commitment to fiscal consolidation. They have prepared the ground for adequate forecasting and financial planning so as to ensure that the overall gains of fiscal prudence are also reflected in efficient intra-year cash management. Effective cash management helps in conserving scarce cash resources and ultimately, in controlling aggregate spending and the budgetary gap. In the context of Central Government finances, it is observed that the intra-year divergence between revenue flows and expenditure is high. There is also a tendency of bunching of expenditure during the latter part of the fiscal year (Chart IV.1).
4.5 The initiative to introduce cash management on a pilot basis in major spending Ministries in the 2003-04 budget needs to be seen as an important step forward towards effective expenditure management. The cross-country experience indicates that the time-sliced release of funds for spending and incentive-based cash management practices contribute to overall fiscal discipline (Box IV.1).
4.6 Subsidies have almost doubled in the last five years with a sharp increase in 2002-03. Food and fertiliser subsidies account for 87.4 per cent of the expansion in subsidy spending since 1990-91. Food subsidy, mainly financing the buffer carrying cost and producers' subsidy, has been rising pari passu with the accumulation of foodstocks. The fiscal impact of the increase in foodgrain stocks is visible in the unprecedented expansion in food subsidies since 2000-01. On the other hand, the rationalisation of the Retention Price Scheme and enhancement of the maximum retail price of fertilisers has had positive effects on fertiliser subsidies. The budget for 2001-02 announced a phased programme of complete decontrol of the urea prices by April 1, 2006. The impact of these measures is reflected in the decline in fertiliser subsidies in recent years. Moreover, the emergence of petroleum subsidy since 2002-03 is the result of the dismantling of APM for petroleum products. The total subsidies are, however, high at 1.6 per cent of GDP in 2002-03, even after excluding the subsidy on the petroleum products (Table 4.3).
(Rupees crore) |
|||||||
|
|||||||
Year |
Food |
Fertiliser |
Interest |
Petroleum |
Other |
Total Subsidies |
|
|
|||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
|
|
|||||||
1990-91 |
2,450 |
4,389 |
379 |
0 |
4,940 |
12,158 |
|
(0.4) |
(0.8) |
(0.1) |
– |
(0.9) |
(2.1) |
||
1991-92 |
2,850 |
5,185 |
316 |
0 |
3,902 |
12,253 |
|
(0.4) |
(0.8) |
(0.1) |
– |
(0.6) |
(1.9) |
||
1992-93 |
2,800 |
6,136 |
113 |
0 |
1,775 |
10,824 |
|
(0.4) |
(0.8) |
– |
– |
(0.2) |
(1.4) |
||
1993-94 |
5,537 |
5,079 |
113 |
0 |
876 |
11,605 |
|
(0.6) |
(0.6) |
– |
– |
(0.1) |
(1.4) |
||
1994-95 |
5,100 |
5,769 |
76 |
0 |
909 |
11,854 |
|
(0.5) |
(0.6) |
– |
– |
(0.1) |
(1.2) |
||
1995-96 |
5,377 |
6,735 |
34 |
0 |
520 |
12,666 |
|
(0.5) |
(0.6) |
– |
– |
– |
(1.1) |
||
1996-97 |
6,066 |
7,578 |
1,222 |
0 |
633 |
15,499 |
|
(0.4) |
(0.6) |
(0.1) |
– |
– |
(1.1) |
||
1997-98 |
7,900 |
9,918 |
78 |
0 |
644 |
18,540 |
|
(0.5) |
(0.7) |
– |
– |
– |
(1.2) |
||
1998-99 |
9,100 |
11,596 |
1,434 |
0 |
1,463 |
23,593 |
|
(0.5) |
(0.7) |
(0.1) |
– |
(0.1) |
(1.4) |
||
1999-2000 |
9,434 |
13,244 |
1,371 |
0 |
438 |
24,487 |
|
(0.5) |
(0.7) |
(0.1) |
– |
– |
(1.3) |
||
2000-01 |
12,060 |
13,800 |
111 |
0 |
867 |
26,838 |
|
(0.6) |
(0.7) |
– |
– |
– |
(1.3) |
||
2001-02 |
17,499 |
12,595 |
210 |
0 |
903 |
31,207 |
|
(0.8) |
(0.5) |
– |
– |
– |
(1.4) |
||
2002-03(RE) |
24,200 |
11,009 |
765 |
6,265 |
2,379 |
44,618 |
|
(1.0) |
(0.4) |
– |
(0.3) |
(0.1) |
(1.8) |
||
2003-04(BE) |
27,800 |
12,720 |
179 |
8,116 |
1,092 |
49,907 |
|
(1.0) |
(0.5) |
– |
(0.3) |
– |
(1.8) |
||
|
|||||||
RE : Revised Estimates. |
BE : Budget Estimates. |
||||||
Note: Figures in brackets are per cent of GDP. |
4.7 As mentioned before, earlier efforts at fiscal correction have resulted in a persistent decline in capital expenditure. In general, it is capital outlays which have provided the soft option for deficit-based fiscal correction. In the revised estimates for 2002-03, capital outlays fell short of the budgetary target by more than 25 per cent, implying the diversion of resources from productive investments to current expenditures. In the Indian context, there is considerable evidence that public investment has played a preponderant role in entrenching the conditions for higher growth. Moreover, expanding capital outlay in infrastructure has distinct salutary effects in terms of crowding in private investment. Under these circumstances, compression of capital outlay would inevitably affect asset creation and development of the physical infrastructure which holds the key to accelerated growth (Table 4.4).
(Rupees crore) |
|||||||||
|
|||||||||
2002-03 |
2002-03 |
2001-02 |
1995-96 |
1990-91 |
Variation between RE |
||||
(RE) |
(BE) |
and BE (2002-03) |
|||||||
Amount |
Per cent |
||||||||
|
|||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
||
|
|||||||||
Total Capital Expenditure |
62,365 |
69,827 |
60,842 |
38,414 |
31,782 |
-7,462 |
-10.7 |
||
(1+2)=(3+4) |
(2.5) |
(2.7) |
(2.6) |
(3.2) |
(5.6) |
||||
1. Capital Outlay |
30,345 |
40,691 |
26,558 |
14,099 |
12,130 |
-10,346 |
-25.4 |
||
(1.2) |
(1.6) |
(1.2) |
((1.2) |
(2.1) |
|||||
2. Loans and Advances |
32,020 |
29,136 |
34,284 |
24,316 |
19,652 |
2,884 |
9.9 |
||
(1.3) |
(1.1) |
(1.5) |
(2.0) |
(3.5) |
|||||
3. Non-Plan Capital |
20,945 |
26,640 |
21,305 |
21,062 |
15,348 |
-5,695 |
-21.4 |
||
Expenditure |
(0.8) |
(1.0) |
(0.9) |
(1.8) |
(2.7) |
||||
of which |
|||||||||
Defence Capital |
14,912 |
21,411 |
16,207 |
8,015 |
4,552 |
-6,499 |
-30.4 |
||
(0.6) |
(0.8) |
(0.7) |
(0.7) |
(0.8) |
|||||
4. Plan Capital Expenditure (i+ii) |
41,420 |
43,187 |
39,537 |
17,353 |
15,745 |
-1,767 |
-4.1 |
||
(1.7) |
(1.7) |
(1.7) |
(1.5) |
(2.8) |
|||||
i) Central Plan Outlay |
18,735 |
18,205 |
18,193 |
8,255 |
9,134 |
530 |
2.9 |
||
(0.8) |
(0.7) |
(0.8) |
(0.7) |
(1.6) |
|||||
ii) Central Assistance |
22,685 |
24,982 |
21,344 |
9,098 |
6,611 |
-2,297 |
-9.2 |
||
for State and UT Plans |
(0.9) |
(1.0) |
(0.9) |
(0.8) |
(1.2) |
||||
|
|||||||||
RE : Revised Estimates. |
BE : Budget Estimates. |
||||||||
Note: Figures in brackets are per cent of GDP. |
Revenue Position
4.8 Various components of revenue receipts were impacted differentially by underlying macroeconomic conditions. The gap in revenue receipts vis-a-vis initial expectations was due to the fall in collections of direct taxes - individual income tax and corporation tax - as well as the Union excise duties. Both Union excise duties and corporation tax collections were, however, significantly higher than that in the preceding year, benefiting from the revival of industrial activity and the significant improvement in the financial performance of manufacturing companies. Customs duties benefited from the surge in import demand and posted a modest increase relative to budget estimates (Table 4.5).
(Rupees crore) |
||||||||
|
||||||||
2002-03 |
2002-03 |
2001-02 |
1995-96 |
1990-91 |
Variation between RE |
|||
(RE) |
(BE) |
and BE (2002-03) |
||||||
Amount |
Per cent |
|||||||
|
||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
Total Receipts |
4,04,013 |
4,10,309 |
3,62,453 |
1,68,468 |
93,951 |
-6,296 |
-1.5 |
|
(16.3) |
(16.0) |
(15.8) |
(14.2) |
(16.5) |
||||
Revenue Receipts |
2,36,936 |
2,45,105 |
2,01,449 |
1,10,130 |
54,954 |
-8,169 |
-3.3 |
|
(9.6) |
(9.6) |
(8.8) |
(9.3) |
(9.7) |
||||
Tax Revenue (Net) |
1,64,177 |
1,72,965 |
1,33,662 |
81,939 |
42,978 |
-8,788 |
-5.1 |
|
(6.6) |
(6.8) |
(5.8) |
(6.9) |
(7.6) |
||||
Non-Tax Revenue |
72,759 |
72,140 |
67,787 |
28,191 |
11,976 |
619 |
0.9 |
|
(2.9) |
(2.8) |
(3.0) |
(2.4) |
(2.1) |
||||
Capital Receipts |
1,67,077 |
1,65,204 |
1,61,004 |
58,338 |
38,997 |
1,873 |
1.1 |
|
(6.8) |
(6.5) |
(7.0) |
(4.9) |
(6.9) |
||||
|
||||||||
Memo Items@ |
||||||||
|
||||||||
Corporation Tax |
44,700 |
48,616 |
36,609 |
16,487 |
5,335 |
-3,916 |
-8.1 |
|
(1.8) |
(1.9) |
(1.6) |
(1.4) |
(0.9) |
||||
Income Tax |
37,300 |
42,524 |
32,004 |
15,592 |
5,371 |
-5,224 |
-12.3 |
|
(1.5) |
(1.7) |
(1.4) |
(1.3) |
(0.9) |
||||
Customs Duty |
45,500 |
45,193 |
40,268 |
35,757 |
20,644 |
307 |
0.7 |
|
(1.8) |
(1.8) |
(1.8) |
(3.0) |
(3.6) |
||||
Union Excise Duty |
87,383 |
91,433 |
72,555 |
40,187 |
24,514 |
-4,050 |
-4.4 |
|
(3.5) |
(3.6) |
(3.2) |
(3.4) |
(4.3) |
||||
|
||||||||
RE : Revised Estimates. |
BE : Budget Estimates. |
|||||||
@ Memo items are on gross basis which include States’ share. |
||||||||
Note : Figures in brackets are per cent of GDP. |
4.9 The tax-GDP ratio of the Centre has suffered steady deterioration from more than 10 per cent in late 1980s to just about 9 per cent in 2002-03, reflecting a decline in tax buoyancy1. Over the Eighth and Ninth Plan periods, the buoyancy of Central taxes deteriorated from 0.9 to 0.8 mainly on account indirect taxes; although the buoyancy in direct tax collection was maintained at 1.3, it has stagnated recent years and has not compensated adequately the fall in buoyancy of indirect taxes. The restructuring of both direct and indirect taxes effected since 1991 92, coupled with the structural shift in the composition of GDP towards the less-taxed services sector, appears to have affected the growth in tax revenue (Table 4.6)
(Per cent of GDP) |
||||||
|
||||||
Years |
Major Taxes |
Gross Tax |
||||
Revenue |
||||||
Income |
Corporation |
Excise |
Customs |
|||
Tax |
Tax |
Duties |
Duties |
|||
|
||||||
1 |
2 |
3 |
4 |
5 |
6 |
|
|
||||||
1990-91 |
0.9 |
0.9 |
4.3 |
3.6 |
10.1 |
|
1991-92 |
1.0 |
1.2 |
4.3 |
3.4 |
10.3 |
|
1992-93 |
1.1 |
1.2 |
4.1 |
3.2 |
10.0 |
|
1993-94 |
1.1 |
1.2 |
3.7 |
2.6 |
8.8 |
|
1994-95 |
1.2 |
1.4 |
3.7 |
2.6 |
9.1 |
|
1995-96 |
1.3 |
1.4 |
3.4 |
3.0 |
9.4 |
|
1996-97 |
1.3 |
1.4 |
3.3 |
3.1 |
9.4 |
|
1997-98 |
1.1 |
1.3 |
3.2 |
2.6 |
9.1 |
|
1998-99 |
1.2 |
1.4 |
3.1 |
2.3 |
8.3 |
|
1999-00 |
1.3 |
1.6 |
3.2 |
2.5 |
8.9 |
|
2000-01 |
1.5 |
1.7 |
3.3 |
2.3 |
9.0 |
|
2001-02 |
1.4 |
1.6 |
3.2 |
1.8 |
8.1 |
|
2002-03(RE) |
1.5 |
1.8 |
3.5 |
1.8 |
9.0 |
|
2003-04(BE) |
1.6 |
1.9 |
3.5 |
1.8 |
9.2 |
|
|
||||||
RE : Revised Estimates. |
BE : Budget Estimates. |
4.10 Non-tax revenue remained broadly unchanged at 3 per cent of GDP in 2002-03, unresponsive to the impulses of fiscal reforms However, the need for restructuring of public sector undertakings is critical, encompassing a thorough rationalisation of user charges and cost recoveries on the services rendered by the Government or entities in areas such as transport, power and irrigation. The Prime Minister's Economic Advisory Council (2002) had identified establishment rational user charges and credible regulatory authorities as the two critical features on which the success of infrastructure development will depend. The rationalisation of user charges covers utilities such as power, water and transport. User charges could be index-linked to input cost and a process of periodic revision should be automatic (Box IV.2).
4.11 The disinvestment programme made some progress during 2001-02 with the strategic sale process of some public sector undertakings gaining momentum; nevertheless the actual proceeds were lower than the targeted amount. In 2002-03, the disinvestment process remained below expectations. A major challenge facing the programme of public sector restructuring has been the closing down of persistently loss making and non-viable public sector undertakings (PSUs) so that the profitability of the other public enterprises could be a major source of resource generation to provide budgetary support. The stage is set for reforms in the PSUs by restructuring of potentially viable PSUs and improving the profitability and efficiency of the viable units. Priorities in reforms include raising return on investments in PSUs and infusing professionalisation in management (Box IV.3).
Overall deficit
4.12 The revised estimates for 2002-03 posted moderate slippages in the key indicators of the budgetary gap as initial expectations of higher growth in revenue collections and enhanced realisation from disinvestments were belied (Table 4.7).
(Rupees crore) |
|||||||
|
|||||||
2002-03 |
2002-03 |
2001-02 |
1995-96 |
1990-91 |
Variation between RE |
||
(RE) |
(BE) |
and BE (2002-03) |
|||||
Amount |
Per cent |
||||||
|
|||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
|||||||
Gross Fiscal Deficit |
1,45,466 |
1,35,524 |
1,40,955 |
60,243 |
44,632 |
9,942 |
7.3 |
(5.9) |
(5.3) |
(6.1) |
(5.1) |
(7.8) |
|||
Revenue Deficit |
1,04,712 |
95,377 |
1,00,162 |
29,731 |
18,562 |
9,335 |
9.8 |
(4.2) |
(3.8) |
(4.3) |
(2.5) |
(3.3) |
|||
Gross Primary Deficit |
29,803 |
18,134 |
33,495 |
10,198 |
23,134 |
11,669 |
64.3 |
(1.2) |
(0.7) |
(1.5) |
(0.9) |
(4.1) |
|||
|
|||||||
RE : Revised Estimates. |
BE : Budget Estimates. |
||||||
Note: Figures in brackets are per cent of GDP. |
4.13 The persistence of fiscal stress limits the manoeuverability in revenue and expenditure policy and thereby restricts the scope of fiscal policy as a counter-cyclical tool. The committed nature of the expenditure and rigidities in the revenue side impede fiscal discretion in the context of the downturn phase of the business cycle (Box IV.4).
STATE GOVERNMENT FINANCES, 2002-03
4.14 In recent years, the focus of fiscal reform has turned sub-national. It is increasingly recognised that it is the State finances where the government sector's interface with the people is most significant. Issues in the reform of fiscal policy in the States have a direct bearing on the quality of life.
4.15 The growth of revenue receipts of States during 2002-03 over the previous year was facilitated mainly by a rise in States' own taxes and grants from the Centre. Tax revenues were, however, affected by the slowing of activity in the wake of the drought. There were shortfalls in the States' own revenue receipts (tax and non tax revenue) as well as in States’ share in Central taxes in the revised estimates vis-a-vis budget estimates. In the States’ own taxes, the decline was mainly on account of sales tax collection; both States’ property taxes and income taxes exceeded the budget estimates. Under States’ non-tax revenue, receipts from State lotteries and interest receipts were lower in the revised estimates, while dividend and profits exceeded the budget estimates. Capital receipts of the States were higher on account of a rise in market borrowings and special securities issued to the National Small Saving Fund (Table 4.8).
(Rupees crore) |
||||||||||
|
||||||||||
2002-03 |
2002-03 |
2001-02 |
1995-96 |
1990-91 |
Variation between RE |
|||||
(RE) |
(BE) |
and BE (2002-03) |
||||||||
Amount |
Per cent |
|||||||||
|
||||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|||
|
||||||||||
Total Receipts (1+2) |
4,37,292 |
4,25,655 |
3,80,106 |
1,80,433 |
91,160 |
11,637 |
2.7 |
|||
(17.7) |
(16.6) |
(16.6) |
(15.2) |
(16.0) |
||||||
1. Revenue Receipts (a+b) |
2,93,873 |
3,06,844 |
2,55,599 |
1,36,803 |
66,467 |
-12,971 |
-4.2 |
|||
(11.9) |
(12.0) |
(11.1) |
(11.5) |
(11.7) |
||||||
a) |
Tax Revenue |
2,02,518 |
2,15,049 |
1,80,275 |
92,913 |
44,586 |
-12,531 |
-5.8 |
||
(8.2) |
(8.4) |
(7.9) |
(7.8) |
(7.8) |
||||||
States Taxes |
1,49,358 |
1,52,590 |
1,31,710 |
63,865 |
30,344 |
-3,232 |
-2.1 |
|||
( 6.0) |
(6.0) |
( 5.7) |
(5.4) |
( 5.3) |
||||||
Sharable Taxes |
53,160 |
62,459 |
48,565 |
29,048 |
14,242 |
-9,299 |
-14.9 |
|||
(2.2) |
(2.4) |
(2.1) |
(2.4) |
(2.5) |
||||||
b) |
Non-Tax Revenue |
91,355 |
91,795 |
75,324 |
43,891 |
21,881 |
-440 |
-0.5 |
||
(3.7) |
(3.7) |
(3.3) |
(3.7) |
(3.8) |
||||||
Grants |
55,401 |
54,008 |
43,048 |
20,996 |
12,643 |
1,393 |
2.6 |
|||
(2.2) |
(2.2) |
(1.9) |
(1.8) |
( 2.2) |
||||||
States Own Non-Taxes |
35,954 |
37,787 |
32,276 |
22,895 |
9,238 |
-1,833 |
-4.9 |
|||
(1.5) |
(1.5) |
(1.4) |
(1.9) |
(1.6) |
||||||
2. Capital Receipts |
1,43,419 |
1,18,811 |
1,24,507 |
43,630 |
24,693 |
24,608 |
20.7 |
|||
(5.8) |
(4.6) |
(5.4) |
(3.7) |
(4.3) |
||||||
|
||||||||||
RE : Revised Estimates. |
BE : Budget Estimates. |
|||||||||
Note: |
Figures in brackets are per cent of GDP. |
|||||||||
Source : |
Budget Documents of State Governments. |
4.16 Total expenditure in the revised estimates exceeded budget projections in 2002-03 on account of higher capital expenditure which rose to constitute one fifth of total expenditure of States. The increase in capital expenditure was mainly due to increases in the repayment of loans to the Centre and financial institutions reflecting the retirement of high cost debt owed to the Centre under the debt-swap scheme. Capital outlay in the revised estimates for 2002-03, however, fell short of budget estimates (Table 4.9).
(Rupees crore) |
||||||||||
|
||||||||||
2002-03 |
2002-03 |
2001-02 |
1995-96 |
1990-91 |
Variation between RE |
|||||
(RE) |
(BE) |
and BE (2002-03) |
||||||||
Amount |
Per cent |
|||||||||
|
||||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|||
|
||||||||||
Total Expenditure (1+2) |
4,42,609 |
4,30,842 |
3,77,555 |
1,77,584 |
91,088 |
11,767 |
2.7 |
|||
(17.9) |
(16.8) |
(16.4) |
(14.9) |
(16.0) |
||||||
1. |
Revenue Expenditure |
3,55,175 |
3,55,159 |
3,14,833 |
1,45,004 |
71,776 |
16 |
0.0 |
||
of which |
(14.4) |
(13.9) |
(13.7) |
(12.2) |
(12.6) |
|||||
Social Services |
1,19,039 |
1,20,698 |
1,07,655 |
53,607 |
27,962 |
-1,659 |
-1.4 |
|||
(4.8) |
(4.7) |
(4.7) |
(4.5) |
(4.9) |
||||||
Economic Services |
72,803 |
70,409 |
65,889 |
35,669 |
20,892 |
2,394 |
3.4 |
|||
(2.9) |
(2.8) |
(2.9) |
(3.0) |
(3.7) |
||||||
2. |
Capital Expenditure |
87,434 |
75,683 |
62,722 |
32,580 |
19,312 |
11,751 |
15.5 |
||
of Which |
(3.5) |
(3.0) |
(2.7) |
(2.7) |
(3.4) |
|||||
Capital Outlay |
41,600 |
43,619 |
32,206 |
18,495 |
9,223 |
-2,019 |
-4.6 |
|||
(1.7) |
(1.7) |
(1.4) |
(1.6) |
(1.6) |
||||||
|
||||||||||
RE : Revised Estimates. |
BE : Budget Estimates. |
|||||||||
Note : |
Figures in brackets are per cent of GDP. |
|||||||||
Source : |
Budget Documents of State Governments. |
4.17 The revised estimates for 2002-03 indicate deviations in all major deficit indicators of State finances, with significant slippages in the revenue deficit as well as the primary deficit. Gross fiscal deficit was also higher in the revised estimate as compared with the budget estimates (Table 4.10).
(Rupees crore) |
||||||||
|
||||||||
2002-03 |
2002-03 |
2001-02 |
1995-96 |
1990-91 |
Variation between RE |
|||
(RE) |
(BE) |
and BE (2002-03) |
||||||
Amount |
Per cent |
|||||||
|
||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
|
||||||||
Gross Fiscal Deficit |
1,16,730 |
1,02,882 |
95,986 |
31,426 |
18,787 |
13,848 |
13.5 |
|
(4.7) |
(4.0) |
(4.2) |
(2.6) |
(3.3) |
||||
Revenue Deficit |
61,302 |
48,314 |
59,233 |
8,201 |
5,309 |
12,988 |
26.9 |
|
(2.5) |
(1.9) |
(2.6) |
(0.7) |
(0.9) |
||||
Primary Deficit |
42,584 |
30,629 |
33,497 |
9,494 |
10,132 |
11,955 |
39.0 |
|
(1.7) |
(1.2) |
(1.5) |
(0.8) |
(1.8) |
||||
|
||||||||
RE : Revised Estimates. |
BE : Budget Estimates. |
|||||||
Note : Figures in brackets are per cent of GDP. |
||||||||
Source: Budget Documents of State Governments. |
4.18 A key issue in redrawing of boundaries between the public and the private sectors from the societal point of view is the physical and social infrastructure which provides the wherewithal for a durable improvement in standards of livelihood and significantly impacts the health of the State finances. In this regard, power sector reforms have assumed critical importance in recent years. The States of Andhra Pradesh, Delhi, Haryana, Karnataka, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and Uttaranchal have enacted State Electricity Reform Acts providing, inter alia, for unbundling/ corporatisation of State Electricity Boards (SEBs). Twenty one States have either constituted or notified the constitution of State Electricity Regulatory Commission (SERC). Twenty five States have signed tripartite agreements envisaged under the scheme for one-time settlement of outstanding dues payable by the SEBs to the Central Public Sector Undertakings (Box IV.5)
COMBINED BUDGETARY POSITION OF THE CENTRE AND STATES
4.19 The combined revenue receipts of the Centre and States recorded a shortfall from the budgeted level. The rise in non-tax revenue, albeit marginal, was inadequate to compensate the shortfall in tax collections. The combined capital receipts increased in the revised estimates partly due to additional market borrowings by the States under the debt swap scheme to prepay the high cost debt to the Centre. The combined aggregate expenditure exceeded the budget estimates on account of higher than anticipated revenue expenditure and loans and advances, while capital outlay (capital expenditure net of loans and advances) registered a decline. Developmental expenditure rose mainly on account of increased spending in the social sector. On the other hand, non-development expenditure (excluding others) was lower than the budgeted level due to reduction in interest payments and non-developmental capital outlay. The revised estimates for 2002-03 place all the major deficit indicators of the combined Government sector (Centre and States) higher than their budgeted levels (Table 4.11).