Modest hike in fuel retail prices to derail fiscal targets
The oil package, which includes Customs and excise duty cuts, will lead to a total revenue loss of Rs 22,660 cr. Watch: Fuel price hike inevitable: PM I New fuel rates
By TNN |
NEW DELHI: The government's oil package announced on Wednesday may well shield the consumers from the global oil price spike, but it is sure to strain its own finances. The oil package, which includes Customs and excise duty cuts, will lead to a total revenue loss of Rs 22,660 crore.
Experts say at a time when the government���s expenses are also expected to witness a substantial increase, this could well upset its fiscal balance and lead to missing the Fiscal Responsibility and Budget Management (FRBM) Act targets. As per the FRBM Act, the government is obliged to bring down its revenue deficit to zero and fiscal deficit to 3% of the GDP in the current fiscal.
Experts say at a time when the government���s expenses are also expected to witness a substantial increase, this could well upset its fiscal balance and lead to missing the Fiscal Responsibility and Budget Management (FRBM) Act targets. As per the FRBM Act, the government is obliged to bring down its revenue deficit to zero and fiscal deficit to 3% of the GDP in the current fiscal.
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Finance Minister P Chidambaram himself had indicated in his Budget speech that revenue deficit will be wiped out only in the next fiscal on account of increase in social sector schemes. He had pegged fiscal deficit at 2.5% of the GDP against target of 3%.
Experts, however, say increased expenditure on account of Sixth Pay Commission award for which no provision was made in the budget estimates, debt waiver package, revenue loss on account of various packages and increase in the direct subsidy bill could derail the FRBM targets.
���This is not a solution to the problem. It creates a huge fiscal hole,��� said leading economist Saumitra Chaudhury. Others also concur with the view and feel that FRBM targets could be well off the radar now. ���The government is unlikely to meet its FRBM target of 2.5% of GDP this fiscal. The deficit could be about 3.5% this year. The burden of off-balance sheet items too could be very large this year because of oil bonds. But this year has been an exceptional year and some departure from the FRBM targets could be permissible,��� said Abheek Barua, chief economist, HDFC Bank.
The total direct subsidies on account of food, fertiliser and oil in the current fiscal have been pegged at Rs 66,357 crore, which inclusive of some interest expenses would be Rs 71,430 crore. Total subsidy bill is expected to go sharply up further on all the three main heads. This is exclusive of the oil bonds, which are off balance sheet ��� only the interest outgo on oil bonds figure in the Budget. If one goes by the estimate of Rs 1,35,000 crore for oil bonds as given by the oil ministry, the interest outgo on this count would also add to the total expenses.
The cash outgo on account of agri loan waiver package would be Rs 25,000 crore. The exchequer would have to take a hit of Rs 30,062 crore in the current fiscal if the government decides to implement the Sixth Pay Commission Report.
Besides, key social sector schemes launched by the UPA government could lead to some increase in expenditure. Though the Budget has made a provision of Rs 16,000 crore, expansion of The National Rural Employment Guarantee Scheme (NREGS) is also going to cost more.
However, government revenues have been very buoyant, particularly direct taxes. Riding on the back of buoyancy in revenues, the gross-tax GDP ratio is projected to go up to 11.8% in the current fiscal. Direct and indirect taxes are estimated at Rs 3,64,675 crore and Rs 3,21,264 crore, respectively. But considering that the economy is not expected to grow as fast as last year, the revenue buoyancy witnessed in the last fiscal may not be seen in the current fiscal.
Moreover, to fight inflation the government had earlier taken measures like removal of Customs duty from crude edible oil, which coupled with current oil package would also cast their shadow on the total collections.
���One other point on the plus side. Note that the final numbers for 2007-08 were just released. Total revenue and grants were 0.3% of GDP higher than the revised estimates. So, probably revenue for this year will also be higher than projected in the Budget. It will be difficult to meet the FRBM targets if oil price stay high,��� said Joshua Felman, head of the International Monetary Fund office in India.
Experts say that there have been indications of an FRBM-II already. They feel that a rethink on FRBM could ensue in the backdrop of these events. Moreover, the rise of oil in the global markets has not ceased. It would be interesting to see as to how the government would deal with it after crude rises further.
The cash outgo on account of agri loan waiver package would be Rs 25,000 crore. The exchequer would have to take a hit of Rs 30,062 crore in the current fiscal if the government decides to implement the Sixth Pay Commission Report.
Besides, key social sector schemes launched by the UPA government could lead to some increase in expenditure. Though the Budget has made a provision of Rs 16,000 crore, expansion of The National Rural Employment Guarantee Scheme (NREGS) is also going to cost more.
However, government revenues have been very buoyant, particularly direct taxes. Riding on the back of buoyancy in revenues, the gross-tax GDP ratio is projected to go up to 11.8% in the current fiscal. Direct and indirect taxes are estimated at Rs 3,64,675 crore and Rs 3,21,264 crore, respectively. But considering that the economy is not expected to grow as fast as last year, the revenue buoyancy witnessed in the last fiscal may not be seen in the current fiscal.
Moreover, to fight inflation the government had earlier taken measures like removal of Customs duty from crude edible oil, which coupled with current oil package would also cast their shadow on the total collections.
���One other point on the plus side. Note that the final numbers for 2007-08 were just released. Total revenue and grants were 0.3% of GDP higher than the revised estimates. So, probably revenue for this year will also be higher than projected in the Budget. It will be difficult to meet the FRBM targets if oil price stay high,��� said Joshua Felman, head of the International Monetary Fund office in India.
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Experts say that there have been indications of an FRBM-II already. They feel that a rethink on FRBM could ensue in the backdrop of these events. Moreover, the rise of oil in the global markets has not ceased. It would be interesting to see as to how the government would deal with it after crude rises further.
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