The Hindu : Significant economic growth envisaged this year

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Saturday, Aug 09, 2003

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Significant economic growth envisaged this year

By Our Special Correspondent

NEW DELHI AUG. 8. Acknowledging the existence of "pressure points" in the economy due to the rising food and petroleum subsidies, the Central Government has asserted that this year's growth will be "significant", thanks to a robust agriculture in the wake of a good monsoon and industrial revival.

Presenting the first-ever "Quarterly Statement on the Economy and Budget"— tabled by the Finance Minister, Jaswant Singh, in the Rajya Sabha — on Thursday to meet the mandatory obligation following the passage of the Fiscal Responsibility and Budget Management Bill in Parliament, the Government claimed that the fiscal deficit was contained in the first quarter of 2003, despite fears of a widening deficit by the World Bank. It, however, conceded that net tax revenues had slipped.

Despite these "pressure points", the report said the positive side was the development in the first quarter, which was encouraging. "This year should witness significant growth coupled with macroeconomic stability".

The growth process would be helped by a strong inflow of foreign exchange reserves of nearly $85 billion, low inflation, double-digit exports and a soft interest rate regime. Coupled with this, the good monsoon should reverse the agricultural output trend making the farm growth robust compared to the negative growth in 2002-03.

Fiscal deficit lower

Fiscal deficit up to June this year was only Rs. 38,608 crores, which was lower by Rs. 952 crores compared to that in the previous year. The deficit constituted just 25 per cent of the budget estimate for 2003-04 against 29 per cent in the previous year, the review noted, indicating that the slippages in the net tax revenue at Rs.19,172 crores in the first quarter of 2003-04 were lower against Rs.24,150 crores in the same period last year.

Pointing out that there was accelerated improvement in the tax administration; the review vowed "no slippage shall be permitted in bringing about such improvements".

Other sectors such as industry and services would benefit from the growth in the farm sector, it said, noting that the index of industrial production was up by five per cent in the first two months in the current year compared to 4.1 per cent a year ago.

The revenue deficit was put at Rs. 40,031 crores during April-June this year, constituting 35.6 per cent of the budget estimate as against Rs. 34,543 crores. Even the gross collection fell by Rs. 34,143 crores during April-June this year compared to Rs. 36,585 crores in the corresponding period in 2002-03, the report said.

Forex up

Maintaining that the economic fundamentals were strong, the review said inflation was showing signs of deceleration and the foreign exchange reserves were surging to about $ 85 billion. Exports performed "exceptionally'' well, recording 19 per cent growth in 2002-03 and 11 per cent in the first two months of this year.

The review apparently found nothing amiss in the rally in stock prices, which rose by 22.68 per cent in Sensex, between March 31 and July 30 and said the `buoyant' FII inflow testifies a "distinct improvement'' in the investment climate.

On the buyback of high-cost government securities, which received a lukewarm response from the banks and FIs, it said the net cash outgo was estimated at Rs. 2,539 crores and the impact on fiscal deficit during the current year was projected at Rs. 2,020 crores, which is likely to be absorbed within the budgeted interest payment provision of Rs. 1,23,223 crores.

The Plan expenditure was higher at Rs. 1,138 crores in the first quarter at Rs. 19,221 crores, while non-plan expenditure was Rs. 57,501 crores, which was lower by Rs. 131 crores compared to the previous year.

Gross tax revenue up to June 30 was put at Rs. 48,509 crores of which Rs. 14,685 crores was refunded. With an additional Rs. 14,652 crores devolution to States, the net tax mop-up was Rs. 19,172 crores in April-June this year, which was lower by Rs. 4979 crores compared to the previous year.

"This is primarily because of high tax devolution to the States (Rs. 2,489 crores) and lower collection from indirect taxes.'' The fall in indirect taxes were due to the whopping 16 per cent decline in excise duty collections at Rs. 13,237 crores in April-June 2003 as against Rs. 15,871 crores in the same period in the previous year.

However, customs duty mop-up rose by nine per cent to Rs. 11,960 crores in the first quarter of this year despite reduction in peak rate of basic customs duty from 30 per cent to 25 per cent.

Cash management system

About containment of expenditure, the review said the system of cash management on a pilot basis was put in place for the first time in nine major spending Ministries and as a result, the actual expenditure did not exceed the projected requirement.

The overall actual expenditure of Rs. 16,692 crores on the nine Ministries was just 79 per cent of the projected requirement of Rs. 21,168 crores for the first quarter. The gross collection from direct taxes, however, rose by 26 per cent to Rs. 21,543 crores with corporation taxes surging by an "impressive'' 35 per cent and income tax registering 16 per cent rise in the first quarter, the review said.

While the non-tax revenue rose marginally by three per cent to Rs. 5,869 crores during the period compared to Rs. 5,713 crores in the last year, the Government's gross debt stood at Rs. 1,23,887 crores during the first three months of this fiscal even as it raised another Rs. 22,120 crores from the ways and means advances and its cash balances for financing the deficits of Rs. 38,608 crores and Rs. 39,037 crores in the Consolidated Fund of India and Public Account respectively, the review said.

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