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New Delhi, Aug. 24

THE Government said on Wednesday that the fiscal situation is likely to come under strain in the coming months due to a rising subsidy bill and the need to fund the food-for-work and employment guarantee programmes.

"Major fiscal challenges lie ahead in management of subsidies, finding resources for funding the food-for-work and employment guarantee programmes and neutralising the decline in non-debt receipts due to debt relief to States under the award of the 12th Finance Commission," the Ministry of Finance has said in its `Quarterly review of the trends in receipts and expenditure in relation to the Budget' for April-June 2005.

The Finance Minister, Mr P. Chidambaram, tabled the review in Parliament on Wednesday. However, on the brighter side, the Government has said that the economy is demonstrating "considerable resilience," despite adverse factors such as high international crude prices and a series of natural calamities. The review said that the real gross domestic product (GDP) growth is estimated to be 6.9 per cent as per the revised estimates of the Central Statistical Organisation in 2004-05. Stating that that the economy "performed satisfactorily" in the first quarter of the current year, the review points out that industrial growth was healthy at 10.3 per cent during April-June 2005. Inflation gradually decelerated from 5.7 per cent at the beginning of the year to 4.1 per cent as on June 25, 2005. Moreover, exports grew by 19.5 per cent and imports were up by 38 per cent, while forex reserves were $132.9 billion by June-end.

The Chief Economic Advisor, Dr Ashok Lahiri, told newspersons that the Government is confident that the resilient mood of the economy would be maintained. "Though there were some pressure points, there is nothing to suggest that we should be sounding the alarm bell," Dr Lahiri said. Turning to the capital markets as an indicator of the strength of the economy, the review has stated that "equity valuations as measured by Nifty and Sensex are at all-time highs." It has pointed out that credit expansion during the first quarter of the current year was buoyant at Rs 60,959 crore, which was "higher than the earlier highest of Rs 59,095 crore." The Centre's fiscal deficit was higher at Rs 54,517 crore in April-June 2005-06 compared to Rs 41,681 crore in the same period last year.

The deficit was 36.1 per cent of the budgeted Rs 1,51,144 crore, relatively higher than 30.3 per cent in the year-ago period.

Though revenue deficit in absolute terms was higher at Rs 47,311 crore in the first quarter of 2005-06 compared to Rs 46,394 crore in the same period last fiscal, it was relatively lower at 49.6 per cent of the Budget estimates.

(This article was published in the Business Line print edition dated August 25, 2005)
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