Mumbai, Aug. 27: The Centre has been able to notch up some ‘gains’ on the expenditure management front in 2002-03, the Reserve Bank has said.
Acknowledging the government’s success on this front during the past one year, the RBI said that although there was fiscal support in the form of higher food subsidies, there were distinct gains in expenditure management by the Centre.
“The Centre reined in its expenditure by pruning non-plan spending. However, the states expenditure exceeded budget estimates. But this was mainly in the form of a spurt in capital expenditure towards debt consolidation.”
However, the states were able to contain revenue expenditure. Despite these “modest” successes in expenditure containment, the slippages from budgetary projections underscore the deterioration in the quality of fiscal adjustment, the RBI said.
Gross fiscal deficit of state governments is expected to decline to 4 per cent of GDP in 2003-04 from 4.7 per cent in 2002-03 following continued efforts towards fiscal consolidation, the RBI annual report said.
“The state budgets envisaged continued fiscal consolidation through revenue augmentation and containment of expenditure and revenue deficit is expected to narrow down from 2.5 per cent of GDP in 2002-03 to 1.8 per cent in 2003-04,” the report said.
“There is urgency to halt the dissavings of the public sector, reflected in rising pre-emption of resources through the revenue deficit,” the RBI said adding the inflexibility in fiscal deficit and decline in public sector outlays on social and physical infrastructure have been dominant concerns of the fiscal stance for 2003-04.
Some state governments have taken steps to enact laws for fiscal responsibility with recourse to hard options like attacking the earmarking of funds for current expenditure.
The RBI, however, cautioned states on raising revenue through taxes and said, “In the current phase of business cycle, the priority for revenue augmentation has to be tempered with the need to stimulate investment demand and maintain consumption expenditure.”
As a consequence, the thrust on revenue mobilisation has to be on improvement in tax administration and rationalisation and putting in place IT-enabled environment to implement VAT and widen the tax base, it said.
The RBI asked states to explore alternative taxes and improve the tax regime in areas of stamp duties, registration fees and motor vehicles, to prevent inter-state diversion.