More than the optimism it radiates on prospects for the economy improving during the second half this fiscal, the Mid-year Economic Analysis, tabled in Parliament on Monday by Finance Minister P. Chidambaram, does some refreshing plain-speaking on the urgent need to address worries plaguing the economy’s real sectors.

Even as the analysis hold out hope for GDP growth of 5.7-5.9 per cent in 2012-13 in the face of all kinds of odds, it places on the Government the responsibility of addressing supply-side bottlenecks. It highlights that the Fiscal Responsibility Budget Management (FRBM) benchmarks of the minimum 40 per cent of Budget Estimate (BE) in non-debt receipts and maximum of 45 per cent of BE in both revenue and fiscal deficits could not be realised this financial.

Tax revenues

On the tax revenue side, the mid-year trend growth is lower than estimated. While the targets might be met by taxes on income other than Corporation tax and service tax, achieving targets in Corporation tax on the Direct Tax side and Customs and Central Excise Duty, in indirect tax, is “somewhat difficult given the trend so far”, the mid-year score card concedes. The reasons are not far to seek as slower GDP growth has hit manufacturing and trade, resulting in lower than estimated excise duty collections.

Besides, global economic factors and fluctuations in exchange rates have hit imports other than oil, impacting Customs duty collections. Even on the non-tax front, receipts during the first half of the fiscal rose only 12.4 per cent over such receipts in the corresponding period in 2011-12. The 2G telecom spectrum proceeds proved a party-pooper as the response to the auction was lukewarm. There is a likely slippage in receipts on this score, despite efforts to cut the reserve price.

Despite the capital market trend and scenario being promising, the efforts at speeding up disinvestment to achieve the Rs 30,000-crore target over the rest of 2012-13 will be” a challenge”, it has rightly noted.

The none-too-encouraging picture on the tax front apart, on the expenditure side, both Plan and non-Plan expenditures have shown moderate and sizeable growth during the first half respectively. The non-Plan spend, in particular, at Rs 4, 91,279 crore, grew 16.6 per cent over expenditure of Rs 4, 21,270 crore during the same period of 2011-12.

As a proportion of BE, non-Plan expenditure in the first half is 50.7 per cent during 2012-13, against the five-year average of 48.8 per cent. Interest payments, major subsidies and Defence are still intractable, though attempts were made to reduce the fuel subsidy by raising auto fuel prices and capping liquefied petroleum gas (LPG) supply for domestic consumers.

Policy push

As such, the authors of the analysis have urged the Government to contain higher growth in expenditure on the three items through “policy initiatives”. With elbow-room to further compress compulsive subsidies in these areas being limited due to coalition compulsions, how far and fast the UPA government would stick its neck out in addressing “the structural problem of government finances” is moot.

The mid-year score-card minces no words when it laments “the rapid rise in non-performing bank loans”, which suggests once again the need for “a single-minded focus by all stakeholders” in slashing unnecessary delays to project completion. Besides, failing projects need to be restructured rapidly and equitably, it says.

Bringing in new promoters if the old ones cannot harness better capabilities and new equity and requiring greater risk capital upfront in future financing, including greater promoter equity to buffer bank claims, must also be mooted. This, though, is easier said than done when the investment milieu is as dull as it is now, analysts contend.

gopalan.srinivasan@thehindu.co.in

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