G. Srinivasan

New Delhi, June 8

THE Centre's borrowing to finance the Tenth Plan (2002-07) has so far been higher than the target even though the debt swap scheme has helped reduce the overall debt. "More than 86 per cent of the resources raised in the first four years (2002-06) would be in the form of debt. This source was expected to decline from the Ninth Plan level of 5.78 per cent of GDP by one percentage point in the Tenth Plan period. Instead, in the first four years, it has in fact decreased by only 0.18 percentage point," the Mid-Term Appraisal (MTA) report of the Tenth Plan, recently approved by the Union Cabinet, said.

The MTA, to be forwarded to the National Development Council (NDC) identified the `large' negative Balance from Current Revenue as the most important reason for the excessive reliance on debt financing during the Tenth Plan.

The improvement was to be effected by increasing Central revenue (net of States' share) from 8.8 per cent of GDP in 2001-02 to 10 per cent in 2006-07 and reducing non-Plan revenue expenditure from 10.6 per cent of GDP to around 9.1 per cent for the same period.

Net Central revenues have almost reached the target of around 10 per cent of GDP and non-plan revenue expenditure seems to have fallen to 9.4 per cent in 2005-06 (Budget Estimates).

But, "much of the improvement relates to 2004-05 (revised) and 2005-06 (BE). The average level of non-Plan revenue expenditure realised in the first four years is only about half a percentage point lower than the level reached at the end of the Ninth Plan," the MTA report said.

It said that the balance from current revenues could be improved not just by raising revenue but also by curtailing unprofitable expenditure and reducing leakages. "There is still scope for rationalising direct and indirect tax measures and user charges based on the twin principles of equity and economic neutrality and focusing on improving compliance and tax administration," the Plan panel states.

Pointing out that tax tools and governance could be managed better to promote entrepreneurship and superior economic performance , the MTA said that for this, tax base should expand and distorting tax exemptions further pruned. On the direct tax front, there is substantial scope for taxpayer-friendly computerised administration that could reduce collection costs, improve compliance and curtail rent-seeking and harassment.

The MTA said customs revenues were likely to become less significant if tariff rates are further reduced. Stating that the full reform of the indirect tax structure is still only at a preliminary stage, the MTA called for a rationalisation of the tax base, constitutional and statutory reform and better administration. This, it felt, could release the potential of local industry and business.

The MTA said Central Public Sector Undertakings (CPSUs) were expected to generate more than half (56 per cent) of the resources for the Central Plan. They were expected to raise Rs 5,15,556 crore during the Tenth Plan, of which normally Rs 4,02.134 crore should have been realised during the first four years. Actual realisation is only around half this amount.

The MTA minced no words warning that the failure to raise resources as targeted during the first four years of the Tenth Plan was a serious matter that must be addressed.

(This article was published in the Business Line print edition dated June 9, 2005)
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