Today in New Delhi, India
Dec 12, 2018-Wednesday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

Lower growth may upset budget plans

The lowering of GDP growth projection for current fiscal to 4.4% is bound to force Finance Minister Jaswant Singh to rejig his priorities while formulating budget 2003-04.

india Updated: Feb 18, 2003 14:51 IST

The lowering of the GDP growth projection for the current fiscal to 4.4 per cent is bound to force Finance Minister Jaswant Singh to rejig his priorities while formulating the budget proposals for 2003-04.

Lower growth basically translates to stymied increase in the national income spread with a larger impact on efforts to alleviate poverty. According to CSO estimates, national income is expected to grow at 4.2 per cent against 6.2 per cent in 2001-02.

Similarly, the per capita income growth rate is slated to fall to 2.4 per cent in 2002-03 against 4.3 per cent in the previous year. Per capita income has gone up by just Rs 260, perhaps one of the lowest achieved in recent times.

If this trend continues in the next fiscal, the number of people below the poverty line is bound to go up from 24 per cent. Hence, Singh will be forced to prioritise poverty alleviation in the medium term with more funds.

Secondly, lower GDP growth also means revenue collections would be modest. Since inflation is estimated to be at a historical low of 2.4 per cent, excise revenue is expected to be affected.

A modest revenue mop-up would also have a cyclical effect on the economy, making it imperative for Singh to rework his revenue targets taking into consideration the macroeconomic parameters sought to be achieved.

Also, this may affect the government's plan to reduce borrowings. This is precisely why the government seems to have diluted the Fiscal Responsibility Bill which does not provide for numerical targets for reducing fiscal deficit and, thereby, borrowings. Already, reports suggest that the fiscal deficit is likely to expand to 5.6 to 5.8 per cent in the current fiscal as against the budget projection of 5.3 per cent.

The most worrisome factor the finance minister may have to tackle in the budget is the lower growth achieved in the services sector barring communications. The contribution of services would have been much lower but for communications. In effect, Singh may have to draw up a strategy for reviving the growth momentum in trade and the hotels and transport sectors.

Singh will have to put in place new ideas and alternative strategies to achieve the near impossible 8 per cent annual GDP growth in the tenth Plan to avoid a midcourse correction. There is very little flexibility for Singh to rejig growth figures during the last three years of the 10th Plan since the targets are already on the optimistic side, ranging from 8.1 to 9.2 per cent. So, the next fiscal will be crucial for making or breaking the 8 per cent growth target.

First Published: Feb 11, 2003 16:55 IST