IV. Government Finances (Part 2 of 2) - RBI - Reserve Bank of India
IV. Government Finances (Part 2 of 2)
Financing of Fiscal Deficits
Domestic Public Debt
The Fiscal Outlook
FINANCING OF FISCAL DEFICITS
Financing of Deficit of Centre
4.20 Market borrowings have emerged as the major financing item of the gross fiscal deficit (GFD) of the Centre since the mid-1990s, with a corresponding decline in the share of other liabilities and external financing. There was net outgo under external assistance due to large repayments during 2002-03, including pre-payment of a part of external debt of the order of about Rs.13,000 crore. Another important development affecting the size of market borrowings was the transfer of the entire net proceeds collected under small saving schemes to State Governments with effect from 2002-03. The average utilisation of WMA at Rs.4,182 crore during 2002-03 was lower than that in the previous year (Table 4.12).
# |
Since 2002-03 all the net amount collected through small savings is transferred to States/UTs. |
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@ |
As against net external assistance of Rs.770 crore budgeted in 2002-03, the revised estimates show that net external assistance would be negative at Rs.13,496 crore due to higher repayments/prepayment of Rs.25,210 crore than the budgeted amount of Rs.10,563 crore. |
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Note: |
Figures in brackets are per cent of GFD. |
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Source: |
Budget documents, Government of India. |
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4.21 Among domestic sources, amounts mobilised through small savings and provident funds have generally been at a higher cost than market borrowings through dated securities. Though interest rates have converged since the late 1990s, the cost of small savings continues to be higher than that of market borrowings considering the tax concession available on these funds. The average interest rate on overall public debt of the Centre shows a declining trend since 2000-01, reflecting the fall in the cost of raising funds in the gilt market (Table 4.13)
Financing of States’ Deficit
4.22 The share of market borrowings in financing the GFD of the States has steadily increased. The share of small saving receipts (special securities issued to the NSSF) remained the major source of financing. The share of loans from the Centre was lower in the revised estimates reflecting repayments by States under the debt-swap scheme (Table 4.14).
DOMESTIC PUBLIC DEBT
Debt Position of the Central Government
4.23 The widening fiscal gap has led to a steep rise in the outstanding liabilities of the Government. Of the outstanding domestic debt of the Central Government, internal debt (including special securities issued in lieu of small savings outstanding as at end March 1999) alone accounted for 66.4 per cent and 'other liabilities', which comprise small savings and provident funds accounted for 29.9 per cent at the end of March, 2003. The sharp increase in the debt-GDP ratio since the mid-1990s is reflected in burgeoning interest payments, despite a decline in interest rates. This essentially represents the overhang of outstanding liabilities contracted at high interest cost in the past. This has created a vicious circle of high debt leading to higher interest payments, which in turns leads to higher deficit, higher borrowings and higher debt.
4.24 Another disquieting feature has been the high debt discharge obligations of the Government. The servicing of debt of the Central Government rose significantly during 2002-03. Though the elongation of the average maturity of the dated securities in the recent years has helped in curtailing the rise in repayments, debt servicing, on an average, accounted for more than 70 per cent of the gross market borrowings of the Central Government during the period 1990-91 to 2002-03 (Chart IV.2).
States' Debt
4.25 The high level of gross fiscal deficit have aggravated the debt position of States in recent years. The total outstanding debt of States rose by 17.7 per cent in 2002-03. The debt-GDP ratio of States rose to 28.1 per cent by end-March 2003.
Combined Debt
4.26 The combined outstanding liabilities of the Centre and the State Governments rose during 2002-03. Over the period between 1990-91 to 2002-03, outstanding liabilities of the Central and State Governments shot up by almost 15 per cent per annum (Table 4.15).
Year |
Outstanding Liabilities |
Debt - GDP Ratio |
||||
(end-March) |
(Rupees crore) |
(in per cent) |
||||
Centre |
States |
Combined |
Centre |
States |
Combined |
|
|
|
||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
|
|
||||||
1990-91 |
3,14,558 |
1,10,289 |
3,50,957 |
55.3 |
19.4 |
61.7 |
1995-96 |
6,06,232 |
2,12,225 |
6,89,545 |
51.0 |
17.9 |
58.0 |
2001-02 |
13,66,408 |
5,89,797 |
16,32,084 |
59.5 |
25.7 |
71.1 |
2002-03 (RE) |
15,61,875 |
6,94,289 |
18,66,626 |
63.2 |
28.1 |
75.5 |
|
|
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RE : Revised Estimates. |
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Note : Data regarding States are provisional. |
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Contingent Liabilities/Guarantees of the Government
4.27 The growing size of contingent liabilities has implications for the sustainability of Government finances. The volume of guarantees in the case of States has shown some signs of improvement in the year 2001-02. The contingent liabilities of State Governments also reflects the practice of setting up of special purpose vehicles (SPVs) to borrow from the market. Given the low user charges and inefficient operations of PSUs, these contingent liabilities are a potential threat to the stability and sustainability of the fiscal system (Table 4.16).
(Rupees crore) |
||||||||
|
|
||||||||
Year |
Centre |
States |
Total |
|||||
(end March) |
Amount |
Per cent of GDP |
Amount |
Per cent of GDP |
Amount |
Per cent of GDP |
||
|
|
||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
||
|
|
||||||||
1992-93 |
58,088 |
7.8 |
42,515 |
5.7 |
1,00,603 |
13.4 |
||
1993-94 |
62,834 |
7.3 |
48,866 |
5.7 |
1,11,700 |
13.0 |
||
1994-95 |
62,468 |
6.2 |
48,479 |
4.8 |
1,10,947 |
11.0 |
||
1995-96 |
65,573 |
5.5 |
52,631 |
4.4 |
1,18,204 |
9.6 |
||
1996-97 |
69,748 |
5.1 |
63,409 |
4.6 |
1,33,157 |
9.7 |
||
1997-98 |
73,877 |
4.9 |
73,751 |
4.8 |
1,47,628 |
9.7 |
||
1998-99 |
74,606 |
4.3 |
97,454 |
5.6 |
1,72,060 |
9.9 |
||
1999-2000 |
83,954 |
4.3 |
1,32,029 |
6.8 |
2,15,983 |
11.2 |
||
2000-01 |
86,862 |
4.1 |
1,68,712 |
8.0 |
2,55,574 |
12.1 |
||
2001-02 (P) |
95,859 |
4.2 |
1,66,116 |
7.2 |
2,62,975 |
11.5 |
||
|
|
||||||||
Note : Ratios may not add up to the total due to rounding off. |
P : Provisional. |
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Source : |
1.Data on Centre’s guarantees are sourced from Budget Documents of the Central Government. |
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2.Data on States’ guarantees are based on the information received from State Governments and pertain to 17 major States. |
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4.28 Many States have initiated measures to contain the growth of guarantees such as setting up of guarantee redemption funds and statutory and administrative limits on guarantees following the recommendation of the Technical Committee on State Government Guarantees (1999). Besides, some States have planned to charge guarantee commissions on outstanding guaranteed amounts. The recent Report of the 'Group to Assess the Fiscal Risk of State Government Guarantees' (2002) has made a number of recommendations to limit guarantees by the State Governments so as to contain the fiscal risk (Box IV.6)
Union Budget, 2003-04
4.29 The Union Budget 2003-04 has accorded high priority to fiscal consolidation, with a commitment to eliminate budgetary drags and to strive for revenue enhancement under a modern tax regime. All major deficit indicators are expected to be lower than during 2002-03 (Table 4.17).
(Rupees crore) |
|||||
|
|
|||||
2003-04 |
2002-03 |
Variation |
|||
(BE) |
(RE) |
(BE over RE) |
|||
Amount Per |
cent |
||||
|
|
|||||
1 |
2 |
3 |
4 |
5 |
|
|
|
|||||
Total Receipts/ |
4,38,795 |
4,04,013 |
34,782 |
8.6 |
|
Expenditure |
(16.0) |
(16.3) |
|||
Revenue Receipts |
2,53,935 |
2,36,936 |
16,999 |
7.2 |
|
(9.3) |
(9.6) |
||||
Capital Receipts |
1,84,860 |
1,67,077 |
17,783 |
10.6 |
|
(6.7) |
(6.8) |
||||
Revenue Expenditure |
3,66,227 |
3,41,648 |
24,579 |
7.2 |
|
(13.3) |
(13.8) |
||||
Capital Expenditure |
72,568 |
62,365 |
10,203 |
16.4 |
|
(2.6) |
(2.5) |
||||
Gross Fiscal Deficit |
1,53,637 |
1,45,466 |
8,171 |
5.6 |
|
(5.6) |
(5.9) |
||||
Revenue Deficit |
1,12,292 |
1,04,712 |
7,580 |
7.2 |
|
(4.1) |
(4.2) |
||||
Gross Primary Deficit |
30,414 |
29,803 |
611 |
2.1 |
|
(1.1) |
(1.2) |
||||
|
|
|||||
RE |
: Revised Estimates. |
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BE |
: Budget Estimates. |
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Note |
: Figures in brackets are per cent of GDP. |
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4.30 The budget envisages improvement in the buoyancy of tax receipts. The increase in tax revenue is expected to emanate from Union excise duties, corporation tax, income tax, customs duties and service tax. Of the gross tax collection, the share of States works out to 25.3 per cent. The measures envisaged to increase the tax collections are anchored on broadening the tax base and improving the compliance. This is sought to be achieved by integrating services into the tax net in a comprehensive manner through a constitutional amendment, improvements in tax administration by way of greater application of information technology, and further rationalisation of excise duties. Non-tax revenue in the form of interest receipts and dividends and profits is expected to decline. Capital receipts are budgeted to show a rise mainly due to sharp increase in projected proceeds from disinvestment (Table 4.18).
|
|
||||||
2003-04 |
2002-03 |
Variation |
||||
(BE) |
(RE) |
(BE over RE) |
||||
Amount |
Per cent |
|||||
|
|
||||||
1 |
2 |
3 |
4 |
5 |
||
|
|
||||||
Total Receipts |
4,38,795 |
4,04,013 |
34,782 |
8.6 |
||
(16.0) |
(16.3) |
|||||
Revenue Receipts |
2,53,935 |
2,36,936 |
16,999 |
7.2 |
||
(9.3) |
(9.6) |
|||||
Tax Revenue (Net) |
1,84,169 |
1,64,177 |
19,992 |
12.2 |
||
(6.7) |
(6.6) |
|||||
Gross Tax Revenue |
2,51,527 |
2,21,918 |
29,609 |
13.3 |
||
(9.2) |
(9.0) |
|||||
Of which: |
||||||
Corporation Tax |
51,499 |
44,700 |
6,799 |
15.2 |
||
(1.9) |
(1.8) |
|||||
Income Tax |
44,070 |
37,300 |
6,770 |
18.2 |
||
(1.6) |
(1.5) |
|||||
Customs Duty |
49,350 |
45,500 |
3,850 |
8.5 |
||
(1.8) |
(1.8) |
|||||
Union Excise Duty |
96,791 |
87,383 |
9,408 |
10.8 |
||
(3.5) |
(3.5) |
|||||
Capital Receipts |
1,84,860 |
1,67,077 |
17,783 |
10.6 |
||
(6.7) |
(6.8) |
|||||
Of which |
||||||
Recoveries |
18,023 |
18,251 |
-228 |
-1.2 |
||
Disinvestment |
13,200 |
3,360 |
9,840 |
292.9 |
||
Market Borrowings |
1,07,194 |
1,12,865 |
-5,671 |
-5.0 |
||
State Provident Funds |
7,500 |
8,500 |
-1,000 |
-11.8 |
||
Special Deposits |
9,970 |
10,280 |
-310 |
-3.0 |
||
External Finance |
3,582 |
-13,496 |
17,078 |
– |
||
Others |
25,391 |
27,317 |
-1,926 |
-7.1 |
||
|
|
||||||
RE : Revised Estimates. |
BE : Budget Estimates. |
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Note: Figures in brackets are per cent of GDP. |
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4.31 The Union Budget has initiated fresh measures to contain the size of expenditure, improve cash management and accelerate the debt restructuring process. A major constraint in this endeavour is the downward inflexibility of revenue expenditure which accounts for over 70 per cent of the growth in overall expenditure anticipated in 2003-04. Non-Plan revenue expenditure comprising outflows such as interest payments, defence expenditure, and subsidies would form nearly 80 per cent of revenue expenditure. Interest payments alone would pre-empt 48.5 per cent of the revenue receipts during 2003-04. A noteworthy feature of the expenditure pattern for 2003-04 is that capital outlays are budgeted to increase, while loans and advances are expected to decline (Table 4.19).
(Rupees crore) |
||||||
|
|
||||||
2003-04 |
2002-03 |
Variation |
||||
(BE) |
(RE) |
(2 over 3) |
||||
Amount |
Per cent |
|||||
|
|
||||||
1 |
2 |
3 |
4 |
5 |
||
|
|
||||||
Total Expenditure |
4,38,795 |
4,04,013 |
34,782 |
8.6 |
||
(1+2=3+4) |
(16.0) |
(16.3) |
||||
1. |
Non-Plan |
3,17,821 |
2,89,924 |
27,897 |
9.6 |
|
Expenditure |
(11.6) |
(11.7) |
||||
of which: |
||||||
Interest Payments |
1,23,223 |
1,15,663 |
7,560 |
6.5 |
||
(4.5) |
(4.7) |
|||||
Defence |
65,300 |
56,000 |
9,300 |
16.6 |
||
(2.4) |
(2.3) |
|||||
Subsidies |
49,907 |
44,618 |
5,289 |
11.9 |
||
(1.8) |
(1.8) |
|||||
2. |
Plan Expenditure |
1,20,974 |
1,14,089 |
6,885 |
6.0 |
|
(4.4) |
(4.6) |
|||||
3. |
Revenue |
3,66,227 |
3,41,648 |
24,579 |
7.2 |
|
Expenditure |
(13.3) |
(13.8) |
||||
4. |
Capital Expenditure |
72,568 |
62,365 |
10,203 |
16.4 |
|
(2.6) |
(2.5) |
|||||
|
|
||||||
RE : Revised Estimates |
BE : Budget Estimates. |
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Note: Figures in brackets are per cent of GDP. |
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State Budgets, 2003-04
4.32 The State Budgets for 2003-04 envisage continued efforts towards fiscal consolidation through revenue augmentation and containment of expenditure. The revenue deficit is budgeted to narrow from 2.5 per cent of GDP in 2002-03 to 1.8 per cent in 2003-04 and is expected to enable a decline in the gross fiscal deficit of the States from 4.7 per cent in 2002-03 to 4.0 per cent in 2003-04.
4.33 Revenue receipts of the States are budgeted to rise by 13.3 per cent over the previous year. A significantly high proportion of this rise (65 per cent) would be contributed by States' own revenue receipts comprising States’ own tax and non-tax receipts. Thus, States' own revenue (SOR) resources are expected to finance the major portion of aggregate expenditure in 2003-04 (Table 4.20). The capital receipts of the States are budgeted to decline mainly on account of recovery of loans and advances, market borrowings and reserve funds.
4.34 The growth rate of total expenditure of States is budgeted to decelerate to 7.6 per cent from 17.2 per cent (in the revised estimates for 2002-03), reflecting the expenditure compression measures undertaken by the States. The share of developmental expenditure in total expenditure is budgeted to decline in 2003-04 mainly due to deceleration in expenditure on economic services (Table 4.21).
(Per cent of Total Expenditure) |
||||||||
|
|
||||||||
2003-04 |
2002-03 |
2001-02 |
1995-96 |
1990-91 |
||||
(BE) |
(RE) |
|||||||
|
|
||||||||
1 |
2 |
3 |
4 |
5 |
6 |
|||
|
|
||||||||
I. |
Development |
|||||||
Expenditure (a+b) |
54.8 |
56.0 |
57.4 |
64.7 |
69.5 |
|||
a) |
Revenue |
42.3 |
43.3 |
46.0 |
50.3 |
53.5 |
||
b) |
Capital |
12.5 |
12.7 |
11.4 |
14.4 |
15.9 |
||
II. |
Non-Development |
|||||||
Expenditure (c+d) |
37.2 |
36.3 |
36.6 |
31.2 |
24.8 |
|||
c) |
Revenue |
36.4 |
35.5 |
36.2 |
30.5 |
24.3 |
||
d) |
Capital |
0.8 |
0.8 |
0.4 |
0.7 |
0.5 |
||
III. |
Others (e+f) |
8.0 |
7.7 |
6.1 |
4.2 |
5.8 |
||
e) |
Revenue @ |
1.5 |
1.4 |
1.2 |
0.9 |
1.0 |
||
f) |
Capital * |
6.5 |
6.3 |
4.8 |
3.3 |
4.7 |
||
|
|
||||||||
RE : Revised Estimates. |
BE : Budget Estimates. |
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@ |
Comprise compensation and assignments to local bodies, grants- in-aid contributions and reserves with finance departments. |
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* |
Comprise discharge of Internal debt and repayment of loans to the Centre. |
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Source: Budget Documents of State Governments. |
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4.35 Non-developmental expenditure of States mainly comprise three items, viz., interest payments, administrative expenditure and pensions. The expenditure on these three items taken together as a percentage of revenue receipts is budgeted to show a marginal decline over the previous year (Table 4.22).
Combined Budgets for 2003-04
4.36 By the mid-1990s, the combined gross fiscal deficit was brought down significantly; by the end of the 1990s, however, it slipped back to pre-reform levels. The budgets for 2003-04 project all the major deficit indicators of the Government sector lower in terms of GDP. The reduction in deficit indicators in terms of GDP is envisaged through compressing the rise in expenditure and improvement in tax buoyancy (Table 4.23).
4.37 The combined revenue receipts of the Centre and States are budgeted to rise and lead to an improvement in the combined tax-GDP ratio. Developmental expenditure is estimated to register a lower expansion on account of reduction in the share of the social sector to 8.2 per cent of GDP (Table 4.24).
Financing
4.38 During 2003-04, the overall borrowing requirement (GFD) of the Centre is budgeted to rise by Rs.8,171 crore. Market borrowings would finance the major part of the GFD, 'other domestic liabilities' being the second important item of financing. On the utilisation of borrowed funds, the bulk of the GFD would continue to be used for financing the revenue deficit. (Table 4.25).
(Per cent) |
|||||||
|
|
|||||||
Years |
Financing of GFD |
Decomposition of GFD |
|||||
Market |
Other |
External |
91 day |
Revenue |
Capital |
Loans & |
|
Borrowings |
Liabilities |
Financing |
TB |
Deficit |
Outlay @ |
Advances* |
|
|
|
|||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
|
|||||||
1990-91 |
17.9 |
49.5 |
7.1 |
25.4 |
41.6 |
27.2 |
31.2 |
1991-92 |
20.7 |
45.5 |
14.9 |
18.9 |
44.8 |
23.0 |
32.2 |
1992-93 |
9.2 |
47.0 |
13.2 |
30.6 |
46.2 |
29.0 |
24.7 |
1993-94 |
48.0 |
25.4 |
8.4 |
18.2 |
54.3 |
22.0 |
23.7 |
1994-95 |
35.2 |
56.9 |
6.2 |
1.7 |
53.8 |
16.1 |
30.1 |
1995-96 |
54.9 |
28.3 |
0.5 |
16.3 |
49.4 |
21.1 |
29.6 |
1996-97 |
30.0 |
45.8 |
4.5 |
19.8 |
48.9 |
20.6 |
30.5 |
1997-98 |
36.5 |
63.3 |
1.2 |
-1.0 |
52.2 |
18.7 |
29.1 |
1998-99 |
60.9 |
37.6 |
1.7 |
-0.2 |
59.1 |
11.4 |
29.5 |
1999-00 |
67.1 |
30.9 |
1.1 |
0.8 |
64.6 |
21.3 |
14.1 |
2000-01 |
61.4 |
33.3 |
6.3 |
-1.0 |
71.7 |
19.0 |
9.2 |
2001-02 |
62.2 |
34.9 |
4.0 |
-1.1 |
71.1 |
16.3 |
12.7 |
2002-03 (RE) |
77.6 |
28.0 |
-9.3 |
3.6 |
72.0 |
18.6 |
9.5 |
2003-04 (BE) |
69.8 |
27.9 |
2.3 |
0.0 |
73.1 |
18.9 |
8.0 |
|
|
|||||||
@ Net of Disinvestment Receipts. |
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* Net of Recoveries of Loans. |
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4.39 Small savings receipts would continue to be a major source of financing the States' fiscal deficit, accounting for 58.0 per cent of GFD in 2003-04. Loans from the Centre and State provident fund are anticipated to finance 10.7 per cent and 7.0 per cent of GFD, respectively; however, the share of market borrowings is budgeted to decline to 12.4 per cent from 19.9 per cent in 2002-03. The balance is budgeted to be financed by loans from financial institutions, reserve funds, deposits and advances, etc.
4.40 The combined borrowings requirement (GFD) of the Centre and States has increased, on an average, by 15.3 per cent between 1990-91 and 2002-03. For 2003-04, however, the borrowings requirement is budgeted to increase moderately by 1.2 per cent (Table 4.26).
4.41 Major initiatives in fiscal consolidation are envisaged in the context of the State budgets for 2003-04. A few States have proposed to introduce a new contributory pension scheme for newly recruited employees. With regard to the value added tax, preparatory work towards its introduction is in progress. In view of the apprehensions expressed by a large number of States, the Union Budget 2003-04 envisages that the Central Government would compensate 100 per cent of the loss in the first year, 75 per cent of the loss in the second year and 50 per cent in the third year of the introduction of VAT.
4.42 The Twelfth Finance Commission which was constituted on November 1, 2002 is expected to make recommendations regarding improvement in distribution of net tax proceeds between the Union and the States, and to review evolving principles governing grants-in-aid to the States. The Union Budget 2003-04 has proposed constitutional amendment which would enable levy of tax on services and empowerment to Central and State Governments to collect the proceeds.
4.43 Based on the recommendations of the Eleventh Finance Commission, an Incentive Fund has been instituted for the purpose of encouraging fiscal reforms in the States on the basis of a monitorable fiscal reform programme under the 'States Fiscal Reforms Facility' (2000-01 to 2004-05). Several States have drawn up Medium-Term Fiscal Reforms Programme (MTFRP) by setting targets for broad fiscal indicators in the medium term and by covering various aspects such as fiscal consolidation, public sector enterprises reform, power sector reforms and fiscal transparency. The Planning Commission is also extending support to the MTFRP by ensuring that the Annual Plan framework is consistent with it. The Twelfth Finance Commission would also review the fiscal reform facility introduced by the Central Government and suggest measures for effective achievement of its objectives.
4.44 With the passage of the revised Fiscal Responsibility and Budget Management (FRBM) Bill by the Parliament, institutional arrangements are being envisaged to achieve sound fiscal management through reduction in fiscal and revenue deficits and a phased decline in the Centre's borrowings. Recognising that there could be extraordinary circumstances caused by domestic and global factors, the revised Bill proposes fiscal targets as part of policy rules rather than enacted by legislation, in order to strike a balance between legislative intervention and the need for flexibility to deal with fiscal imperatives. At the State level, Karnataka, Punjab and Tamil Nadu have already enacted the Fiscal Responsibility legislation, while a fiscal responsibility bill has been passed by the State assembly in Kerala. A similar initiative has also been taken by Maharashtra.
Outlook
4.45 A downward inflexibility in the fiscal deficit and the corrosion of public sector outlays on the social and physical infrastructure are the dominant concerns weighing upon the fiscal stance for 2003-04. There is a gathering urgency to halt the dissaving of the public sector, embodied in the rising preemption of resources through the revenue deficit. Elimination of the revenue deficit of the Centre is now envisaged as a medium-term constitutional objective. Fiscal authorities in States which have already moved in the direction of enacting legislation for fiscal responsibility are required to take a hard option i.e., attacking the earmarking of funds for current consumption expenditures. In the current phase of the business cycle, the priority attached to augmenting revenues in the context of the steady deterioration of the tax-GDP ratio has to be tempered with the need to stimulate investment demand and maintain consumption expenditures. Consequently, the thrust of efforts towards revenue mobilisation would have to be on improvements in tax administration, rationalisation of tax structures, rapidly putting in place the IT-enabled environment critical to the implementation of the VAT and widening the tax base by including services in a comprehensive manner in the tax net. Initial shortfalls observed in the cross-country experience in a VAT environment are likely to be more than counterbalanced by the lasting buoyancy gained from uniformity and stopping leakages, particularly in the context of the States.
4.46 While expenditure management would be carried forward with renewed vigour, improvements envisaged on the revenue side are expected to halt the retrenchment of capital outlays forced by the process of fiscal consolidation. The composition of public expenditure is expected to change in favour of public investment at the cost of subsidies and transfers. Public investment is envisaged in a twin role of raising the level of aggregate demand, and expanding the productive capacity of the economy, as there is compelling evidence that it is public investment which has made the predominant contribution to building human and capital stock in India and that it has been the major facilitator of private investment. 'Crowding in' properties of public investment are particularly strong in the social and physical infrastructure. Accordingly, health, housing, education, employment, agriculture and export promotion are the guiding themes of the Centre's budget for 2003-04, indicative of a shift in focus to the quality of fiscal policy. This is extended to all aspects of the ongoing consolidation, and in particular, towards ensuring the sustainability of public debt, including through pension reforms and limits on contingent liabilities - the two major risks to the progress of fiscal reforms. Pension reforms would assume priority in the coming years with the availability of a menu of schemes, diversification of risk and independent regulatory oversight. Steps are being taken to identify and provide for the fiscal risk embodied in State Government guarantees with limits imposed to restrain their growth. These structural changes are expected to impart sustainability to public debt over the medium-term.
1 Tax buoyancy is defined as proportionate change in tax collection as a ratio to proportionate change in tax base/GDP.
2 Provisional data based on the Budget Documents of 28 State Governments and the NCT Delhi, of which three are Vote-on-Account.
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