Goverment finances hit by slowdown

The economic slowdown and the accompanying moderation in the pace of revenue growth has adversely hit the financial health of governments, both Union as well as states, in the financial year 2008-09, according to the Reserve Bank of India’s quarterly review of the economy.

In fact, both the revenue and the expenditure sides of the Central Government’s finances came under stress during FY09, even as the government took steps to reduce inflationary pressures in April-September 2008 – the first half of the fiscal.

The second half of the fiscal found the government engaged in arresting the moderation of economic growth, the RBI report on macroeconomic and monetary developments said, a day ahead of the central bank announcing its annual policy for 2009-10.

As a result, key deficit indicators – revenue deficit and fiscal deficit – widened to 4.4 per cent (as a per cent of gross domestic product) and 6 per cent respectively in the revised estimates for 2008-09. This is higher than the budget estimates of 1 per cent and 2.5 per cent, it added.

The RBI report also said that, though the adverse impact of an economic slowdown on the revenue receipts as observed during 2008-09 is expected to persist during 2009-10 too, there is likely to be some improvement. The revenue receipts during 2009-10 are budgeted to increase by 8.4 per cent from 3.7 per cent in 2008-09 (Revised Estimates).

The growth of gross tax revenue at 6.9 per cent would be higher than that of 5.9 per cent in 2008-09. The gross tax revenue relative to the GDP would, however, decline further during the year.

After the Interim Budget, the Centre announced further cuts in indirect tax rates as part of the fiscal stimulus package, which could have an impact on revenue collections, RBI said.

With regard to state finances, the RBI report said that the budgeted revenue surplus is expected to be wiped out.