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XII FISCAL CONSOLIDATION
Indian Budget 2006-07- Full Text
Full Text of P. Chidambaram, Minister of Finance, Budget Speech(Feb 28, 2006)
Twelfth Finance Commission
108. The recommendations of the Twelfth Finance Commission (TFC) are being implemented. Cumulatively, State loans amounting to Rs.103,710 crore have been consolidated so far. Under the new scheme of tax devolution, Rs.94,402 crore will be released as the States’ share in the current year compared to Rs.78,595 crore in 2004-05. As regards grants-in-aid, the amounts granted in 2004-05 and 2005-06 (RE) are Rs.12,081 crore and Rs.25,134 crore respectively. In 2006-07, both the tax devolution and the grants will be substantially higher. The States have never been so well provided, as you will find from the Budget papers.
109. I may add that I have made appropriate provision in the Budget for debt consolidation and relief. I have also provided Rs.3,000 crore towards compensation for VAT losses, if any, in 2006-07.
Subsidies
110. The issue of subsidies is proving to be a divisive one, but I would urge Honourable Members that it is imperative that we make progress on this front if we are serious about targeting subsidies at the poor and the truly needy. My Ministry has held extensive discussions with stakeholders on three major subsidies, namely, food, fertilizer and petroleum. We have also sought the views of the general public. Working groups/committees have gone into the question of fertilizer and petroleum subsidies, the latest being the Dr. C. Rangarajan Committee. I would urge Members to help the Government evolve a consensus on the issue of subsidies.
Gross Budgetary Support and Gross Fiscal Deficit
111. Mr. Speaker, Sir, please allow me to draw your attention to two path breaking developments on the fiscal front. Firstly, the strategy of enhanced revenue mobilization through reasonable rates, better compliance and widening of the tax base is yielding tangible results. For the Centre, the gross tax-GDP ratio, after rising from 9.2 per cent in 2003-04 to 9.8 per cent in 2004-05, has increased further to 10.5 per cent in 2005-06 (RE). Government estimates that, through better tax administration, it will increase to 11.2 per cent in 2006-07(BE).
112. Secondly, the year 2004-05, for which the actuals are available, has proved to be a turning point. After 20 years, the Gross Fiscal Deficit is less than the Gross Budgetary Support for Plan in that year. What does this mean? This means that Government is not financing the Plan entirely through borrowing. Whether this trend continued in 2005-06 will be known only after the actuals are available. However, in the BE for 2006-07, I have been able to confine the gross fiscal deficit to a number much smaller than the gross budgetary support for the Plan.
113. Last year, reluctantly, I pressed the ‘pause’ button on fiscal correction. I had estimated the revenue deficit for 2005-06 at 2.7 per cent and the fiscal deficit at 4.3 per cent. I am happy to report that I have been proved wrong. We have improved upon both measures. According to revised estimates, the revenue deficit for the current year will be only 2.6 per cent and the fiscal deficit will be only 4.1 per cent.
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