This is unexceptionable and in line with the policy decision already taken. What, however, has evoked a great deal of interest and a fair amount of scepticism, is the level of deficit reduction achieved as well as the government's optimistic projections for the next year. In what is seen as the sharpest ever fiscal correction attempted by any government in two decades, the fiscal deficit, which is estimated at 5.1 per cent of the GDP this year, is proposed to be brought down further to 4.6 per cent next year. Since successive governments have, as a rule, under-performed on fiscal consolidation, the planned reduction in deficit appears to be nothing short of the spectacular. The 2010-11 target of 5.1 per cent could be achieved because of the large collections from the auction of spectrum for third-generation telecom services (3G) and broad band services. These two have contributed almost 1.3 per cent of the GDP, which means that without them the deficit would have been as high as 6.4 per cent.
It is unlikely that such a windfall will occur so soon or at frequent intervals. Therefore, the task of fiscal management the government has set for itself for 2011-12 — a steep reduction by almost two percentage points from the current year's "normal" level arrived at after deducting the one-time yields from the spectrum sales — appears daunting. The government is obviously betting on a robust economic growth, tax buoyancy, and a compression in expenditure. While the Economic Survey expects the economy to grow at the pre-crisis levels of around 9 per cent, the recent decline in manufacturing is worrying. By far the biggest challenge will be on the expenditure side. Given the sharp hike in global oil prices, the allocation for subsidies is meagre. The budgeted expenditure for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), kept at last year's level of Rs.40,000 crore, might well fall short of the money required. The government is also silent on the subsidy implications of the Food Security Bill that awaits Parliament's approval. The projected 14 per cent growth in tax revenue looks achievable with better tax compliance but clearly expenditure looks like ending up far above the estimates.
It is unlikely that such a windfall will occur so soon or at frequent intervals. Therefore, the task of fiscal management the government has set for itself for 2011-12 — a steep reduction by almost two percentage points from the current year's "normal" level arrived at after deducting the one-time yields from the spectrum sales — appears daunting. The government is obviously betting on a robust economic growth, tax buoyancy, and a compression in expenditure. While the Economic Survey expects the economy to grow at the pre-crisis levels of around 9 per cent, the recent decline in manufacturing is worrying. By far the biggest challenge will be on the expenditure side. Given the sharp hike in global oil prices, the allocation for subsidies is meagre. The budgeted expenditure for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), kept at last year's level of Rs.40,000 crore, might well fall short of the money required. The government is also silent on the subsidy implications of the Food Security Bill that awaits Parliament's approval. The projected 14 per cent growth in tax revenue looks achievable with better tax compliance but clearly expenditure looks like ending up far above the estimates.
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