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Gradual fiscal consolidation proposed
February, 26th 2010

Govts revenue receipts expected to decline in the coming financial year.

The Economic Survey recommended a gradual resumption of fiscal consolidation on the back of a slow yet sustainable recovery, even as the governments revenue receipts are expected to decline due to a dip in customs and excise collections in the coming financial year.

While the share of direct taxes as a proportion of gross tax revenue rose from 19.1 per cent in 1990-91 to 55.5 per cent in 2008-09, the proportion of indirect taxes during the same period declined due to poor growth in excise and customs collection and moderation of service tax.

The Survey also pegged the fiscal deficit, revenue deficit and primary deficit at 6.8 per cent, 4.8 per cent and 3 per cent of the gross domestic product (GDP), respectively.

It also noted a slight restraint on expenditure could help the government in narrowing the wide fiscal deficit. Official statistics show total expenditure as a proportion to GDP fell to 14.4 per cent in 2007-08, compared to 17.1 per cent in 2003-04 due to a steep fall in capital expenditure, with falling revenue expenditure paving way for a policy-driven stimulus to prevent demand slowdown.

The largely structural nature of fiscal deficits in India, the levels of recovery in the economy and the sustainability of the recovery without fiscal stimulus call for resumption of the process of fiscal consolidation in a gradual manner, the Survey stated.

It also said the delay in allocation of 3G telecom spectrum, to be initiated from April 9, and non-realisation of proceeds from it this year, is likely to impact non-tax revenues. While direct taxes could partially compensate for the decline in excise, overall revenue marksmanship may take a knock, the survey said.

Tax forgone on account of exemptions under corporate income tax for 2007-08 and 2008-09 was estimated at Rs 62,199 crore and Rs 68,914 crore, respectively. That forgone on account of exemptions under personal income tax was estimated at Rs 33,278 crore and Rs 34,437 crore in the corresponding years.

 
 
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