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A good beginning

IT MAY BE early to rejoice but, hopefully, the substantial improvement in the Government's fiscal position in the first quarter marks a turnaround for the country. The Central Government's fiscal deficit for the first quarter ended June at Rs. 25, 073 crores is substantially lower than the Rs. 33,512 crores in the same period last year; it was 22.5 per cent of the Budget Estimates compared to 41.9 per cent.

Thanks to the significant industrial turnaround and the better corporate performance, net tax revenues went up 19.6 per cent during the quarter and the total revenue receipts grew an impressive 27 per cent. More significantly, the Finance Minister, Mr. Y ashwant Sinha's persistent efforts and parleys with different Ministries and departments to contain and bring down the non-developmental expenditure finally appear to be yielding results. The non-Plan expenditure in the first quarter is much lower at Rs. 38,374 crores (Rs. 43,858 crores). The Plan expenditure, on the other hand, has gone up 26 per cent to Rs. 18,709 crores, in keeping with the Government's commitment to invest more in the productive segments. The buoyancy in revenue receipts and the eff ective curtailment of non-Plan expenditure has helped reverse the trend of burgeoning revenue deficits over the past few years. According to the figures released by the Controller-General of Accounts, the revenue deficit till June stood at Rs. 16,406 cro res against Rs. 24,817 crores in the previous period, a drop of 33 per cent; it was 21.2 per cent of the Budget Estimates compared to 45.8 per cent. Month-wise figures, however, indicate that much of the improvement in fiscal and revenue deficit figures came in June, when the revenue deficit and the interest payments were negative. This means there is no room for complacency and persistent efforts would be needed to keep a tight leash on non-Plan expenditure in the coming months.

It would be necessary to ensure that the buoyancy in revenue receipts is sustained in the subsequent quarters and a close watch is kept on expenditure so as to contain the fiscal deficit at the budgeted Rs. 1,11,275 crores or 5.1 per cent of GDP. Viewed in the context of the steady fiscal deterioration in recent years, and particularly the unprecedented imbalances over the last two years, the first quarter figures represent only a small improvement. The trend needs to be sustained to bring about real fi scal correction. In fact, Mr. SInha has asked the ministries to help bring down the fiscal deficit this year to less than 5 per cent against the budgeted 5.1 per cent. Incidentally, this is only a part of the problem and taking into account the State fin ances also, the picture that emerges is quite alarming. The consolidated fiscal deficit of State governments touched a high of 4.3 per cent of GDP in 1998-99 from 2.8 per cent the preceding year and there was no perceptible improvement in this figure in 1999-2000. Consequently, the combined gross fiscal deficit of the Centre and the States has gone up to over 9 per cent of GDP. The recent efforts to discipline the States through Memoranda of Understanding (MoU) have met with limited success and more eff orts are needed in this direction to achieve a better fiscal balance.

If the first quarter achievement is to become a trend and improve, it would be necessary to combine the austerity measures with a more vigorous pursuit of public sector reforms both at the Central and State levels. Widening the tax-base by bringing more services under the tax net and ensuring better returns on capital invested by raising the user-charges on services are some of the other measures needed to improve the government finances on a more sustainable basis.