Stimulus Package Major Cause for Lower Indirect Receipts

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Stimulus Package Major Cause for Lower Indirect Receipts

AIT News Network

NEW DELHI: 25th February 2010

Pre-Budget Economic Survey 2009-10 presented by the Union Finance Minister, Shri Pranab Mukherjee in Parliament states that there is likely to be a shortfall in revenue receipts on account of large decline in indirect taxes like customs and excise and the likely lower-than-budgeted non-tax revenues. With some expenditure restrain, it might still be possible to contain the deficit at the budgeted levels. The largely structural nature of fiscal deficits in India, the level 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 Economic Survey shows a revenue expenditure of Rs. 8,97,232 crore against the receipts of Rs. 6,14,497 crore thereby leaving a deficit of Rs. 2,82,735 crore (BE). For the period April to December of 2009-10, the revenue receipts were Rs. 3,89,271 crore i.e. 63.3 per cent of the BE for the year. The total financial deficit for 2009-10 is estimated at Rs. 4,00,996 crore. For the first three quarters the deficit is Rs. 3,09,980 crore i.e. 77.3 per cent of the BE. As per cent of GDP, the financial deficit for 2009-10 (BE) is 6.5 as compared to 5.9 per cent for 2008-09. Revenue receipts as percent of GDP are pegged at 10.0 percent whereas revenue expenditure is estimated to be 14.6 per cent, thereby leaving a revenue deficit of 4.6 per cent of GDP.

The reversal in major fiscal deficit indicators is due to a policy-driven stimulus to counter the demand slowdown. The Economic Survey states that in view of the uncertainties associated with the macro economic environment and not so strong signs of recovery, the budget for 2009-10 continued fiscal expansion to boost demand. As stimulus packages were announced late in the second half of the 2008-09, the full impact of the measures was expected to kick in the current fiscal, particularly on the revenue side.

The direct taxes as per BE for 2009-10, contributed Rs. 3,70,000 crore and indirect taxes Rs. 2,69,477 crore , accounting for gross tax revenue of Rs. 6,41,079 crore. The 2008-09 figures for these heads being Rs. 3,38,213 crore, Rs. 2,69,454 crore and Rs. 6,09,705 crore respectively. The trends in individual taxes carried forward the tilt in composition in favour of the direct taxes with their shares in total tax revenue rising to 57.7 per cent in 2009-10 (BE) as compared to 55.5 per cent in 2008-09. This reflects the fact that as part of fiscal stimulus package to revive demand, it was excise that bore the brunt of tax cuts and the effect of economic slow down was more pronounced in consumption than on income.

On the revenue side, the budget for 2009-10 estimated growth in gross tax revenue at 5.1 per cent composed of a 9.4 per cent growth in direct taxes and an envisage growth of almost the same level in indirect taxes. However, for the year (April-December, 2009) gross tax revenue has declined by 2.5 per cent, composed of a 13.2 per cent growth in direct taxes and 20.4 per cent decline in indirect taxes. On the expenditure side, the total expenditure in April- December, 2009 grew by 18.5 per cent ( as against the 15.8 per cent growth envisage by the BE) and as a proportion of the BE for the year was placed at 69.3 per cent. Plan expenditure grew by 23.0 per cent and was at 64.6 per cent of the BE in April-December, 2009. Non-plan expenditure rose by 16.6 per cent ( as against the growth of 14.8 per cent envisaged by the BE) and as a proportion of BE for the year was placed at 71.5 per cent. Fiscal and revenue deficit for April-December, 2009 were placed at 77.3 per cent and 88.9 per cent.