The unexpected buoyancy in tax revenues , particularly tax on personal income and Customs duty, may help the government compress the fiscal deficit a lot more than anticipated. But that is provided the Centre does not develop an urge to turn profligate in the fourth quarter of the year.
The huge rise in the advance estimates of nominal GDP for 2010-11 , that expanded by 20.3%, is set to lower fiscal deficit as percentage of the size of the economy from Budget estimate of 5.5% to 4.8%. That is, if the fiscal deficit for the year rises to Rs 3,81,408 crore by March end. Figures available till end of December show fiscal deficit at 2.2% of the advance estimates of GDP.
If tax collection maintains momentum, fiscal deficit for the year may be contained at 4.5% of the GDP, or even lower. Here's why. First, the government had estimated collections on personal income tax to decline 3.5% when it widened the tax slabs in Budget 2010 and allowed new deduction for investment in infrastructure bonds. But tax collection under this head grew 13.1% in the nine months to December, as economic grew and incomes rose. Customs duty collection was budgeted to grow about 36.1%. Actual growth during April-December 2010 was a whopping 65.8%, thanks to increased imports for various commodities and flareup in crude prices due to geopolitical developments and severe weather.
Performance on corporate taxes and excise duty too have bettered Budget estimates so far. Corporate tax collections grew about 20.4% in April-December 2011 against 18.1% estimated in the Budget. Although earning pressures are seen, tax collection is unlikely to lose momentum when the final payments come in March.
On the non-tax revenue front, auction of spectrum earlier in the year, which fetched an unexpected Rs 1,05,000 crore against a conservative estimate of Rs 35,000 crore, has put the government in a rather comfortable position. As has PSU share sales so far.
So what could spoil the party? Right now, the government expenditure seems to be under control. By December end, total expenditure was just 71% of the total budgeted expenditure of Rs 11,08,749 crore. But with rising crude prices and inability of the government to pass through the increase could make oil subsidy rise. Fertiliser as well as food subsidy too could put some pressure. Yet, these amounts are unlikely to be so large to push up the fiscal deficit to 5%.
The huge rise in the advance estimates of nominal GDP for 2010-11 , that expanded by 20.3%, is set to lower fiscal deficit as percentage of the size of the economy from Budget estimate of 5.5% to 4.8%. That is, if the fiscal deficit for the year rises to Rs 3,81,408 crore by March end. Figures available till end of December show fiscal deficit at 2.2% of the advance estimates of GDP.
If tax collection maintains momentum, fiscal deficit for the year may be contained at 4.5% of the GDP, or even lower. Here's why. First, the government had estimated collections on personal income tax to decline 3.5% when it widened the tax slabs in Budget 2010 and allowed new deduction for investment in infrastructure bonds. But tax collection under this head grew 13.1% in the nine months to December, as economic grew and incomes rose. Customs duty collection was budgeted to grow about 36.1%. Actual growth during April-December 2010 was a whopping 65.8%, thanks to increased imports for various commodities and flareup in crude prices due to geopolitical developments and severe weather.
Performance on corporate taxes and excise duty too have bettered Budget estimates so far. Corporate tax collections grew about 20.4% in April-December 2011 against 18.1% estimated in the Budget. Although earning pressures are seen, tax collection is unlikely to lose momentum when the final payments come in March.
On the non-tax revenue front, auction of spectrum earlier in the year, which fetched an unexpected Rs 1,05,000 crore against a conservative estimate of Rs 35,000 crore, has put the government in a rather comfortable position. As has PSU share sales so far.
So what could spoil the party? Right now, the government expenditure seems to be under control. By December end, total expenditure was just 71% of the total budgeted expenditure of Rs 11,08,749 crore. But with rising crude prices and inability of the government to pass through the increase could make oil subsidy rise. Fertiliser as well as food subsidy too could put some pressure. Yet, these amounts are unlikely to be so large to push up the fiscal deficit to 5%.
