The Reserve Bank India today said the financial condition of the states and the Centre may fail to show improvement in 2008-09 as the government is forced to spend more to avert an economic slowdown and revenue growth remains lower than expected.
The government expenditure is expected to grow as reflected in the substantial supplementary demand for grants. The Centre has taken parliamentary nod for gross expenditure of Rs 2,37,286 crore and Rs 55,605 crore, respectively, of which net cash outgo would be Rs 1,05,613 crore and Rs 42,480 crore, respectively, the RBI said in its review of macroeconomic and monetary developments in the third quarter ended December 2008.
While expenditure is slated to increase, growth in tax revenue is likely to decelerate in the coming months due to a moderation in economic activity. This will mean missing the targets for reduction in deficit levels that were set when the Union Budget was presented in February 2008. Keeping with moderation in economic growth, the pace of growth tax revenues has already begun to slow down. During April-November 2008, tax revenue as a per cent of Budget estimates was lower than the year-ago period due to lower growth in income tax, corporation tax and customs duties.
The Centre, besides providing explicit subsidies for food, fertiliser and petroleum, has also been supporting Food Corporation of India, fertiliser companies and oil marketing companies through issuance of special bonds. These bonds have fiscal implications as they add to the liabilities of the government.
The interest payments on such bonds are treated as part of the revenue expenditure and they affect the revenue deficit. Till January 19, the government has issued special oil bonds amounting Rs 44,000 crore. Similarly, it has issued special bonds worth Rs 14,000 crore to fertiliser companies.
Linked to slower pace of advance corporate tax revenues is the profit performance. The rising input costs, interest expenses and large provisioning towards mark-to-market (MTM) losses on foreign exchange related transactions exerted pressure on corporate profits.
