Kelkar panel dilutes Finance Commission's fiscal road map

Projects the country's fiscal deficit for this financial year at 5.2-6.1% of the gdp

The Vijay Kelkar committee has framed a road map for the Centre’s fiscal deficit, one that is easier than that projected by the 13th Finance Commission, also headed by Kelkar.

The panel projected the country’s fiscal deficit for this financial year at 5.2-6.1 per cent of the gross domestic product (GDP). For 2013-14 and 2014-15, the panel projected the deficit at 4.6 per cent and 3.9 per cent of GDP, respectively. The 13th Finance Commission had estimated fiscal deficit at three per cent of GDP for 2013-14 and 2014-15.

The panel said if its recommendations weren’t implemented, the fiscal deficit this financial year would stand at 6.1 per cent of GDP, against the Budget estimate of 5.1 per cent. However, if the reforms suggested by it were effected, the deficit would be reduced to 5.2 per cent, it added. In the first five months of this financial year, the fiscal deficit already accounted for about 66 per cent of the Budget estimate. (The Fiscal Backdrop)

In 2011-12, the fiscal deficit was 5.76 per cent of GDP, against the Budget estimate of 4.6 per cent and the revised estimate of 5.9 per cent.

The fiscal deficit projections of the Kelkar panel for the next two financial years are close to what the finance ministry had projected in its papers submitted under the Fiscal Responsibility and Budget Management (FRBM) Act. The ministry had pegged the fiscal deficit for 2013-14 and 2014-15 at 4.5 per cent and 3.9 per cent of GDP, respectively.

This means the Kelkar panel and the ministry both agree the fiscal deficit wouldn’t fall to three per cent of GDP till at least 2014-15. The FRBM Act, enacted in 2003, had prescribed the fiscal deficit be reduced to three per cent of GDP by 2007-08, later relaxing this by a year. However, even in 2008-09, fiscal deficit stood at six per cent of GDP.
 

THE WAY AHEAD

(% of GDP)

2011-12 2012-13  FY14  FY15 Revised

BE  

Without reform

 With reform

Projections

Total receipts  99.69.19.49.39.5 Gross tax revenue 10.210.610.110.310.611.1 Non-debt capital receipts 0.30.40.20.40.30.3 Total expenditure 14.914.715.214.613.913.4 Non-plan expenditure 10.19.510.29.89.18.5 Subsidies 2.41.92.62.21.71.5 Plan expenditure 4.85.154.84.94.9 Fiscal deficit 5.95.16.15.24.63.9 Revenue deficit 4.53.44.43.72.82 Debt 5245.546.746.144.942.9 BE: Budget Estimates
Source: Report of the committee on road map for fiscal consolidation

According to the Kelkar panel, the revenue deficit, or the gap between the government’s current expenditure and its current receipts, would rise to 4.4 per cent of GDP this financial year, compared with 3.4 per cent estimated in the Budget.

However, the panel added if reforms were carried out, revenue deficit could be restricted to 3.7 per cent.

For 2013-14, it pegged the revenue deficit at 2.8 per cent, and for 2014-15, it projected the figure to fall to two per cent of GDP. These figures are much higher than those projected by the 13th Finance Commission, which pegged revenue deficit in 2012-13 at 1.2 per cent. The commission had projected revenue deficit would be done away with in 2013-14, adding the Centre would be revenue-balance surplus by 0.5 per cent. The Kelkar panel’s recommendations are, however, in conformity with the ministry’s projections for 2013-14 and 2014-15.