The implications of special economic zones (SEZs) on revenues of the government has now become a worrying factor for the Reserve Bank of India. | |
| The RBI wants the government to work out the budgetary implications of a slew of tax sops extended to SEZs. |
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| In its 2005-06 Annual Report, the central bank said the scope for deepening fiscal empowerment lies in improving tax revenue, which would require concerted efforts in substantially improving the tax-GDP ratio through further widening of the tax base and curtailment in tax exemptions. |
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| The finance ministry has already estimated revenue loss of about Rs 1,75,487 crore for next four years due SEZs. To put the amount in perspective, the revenue estimates for the current fiscal year stand at Rs 4,03,465 crore. |
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| RBI's concerns about the fiscal situation does not just stop at SEZs. It also wants the government to factor in budgetary implications of oil bonds issued to state-owned petroleum companies and outlay on National Rural Employment Guarantee scheme. |
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| The large fiscal deficit has led to accumulation of outstanding debt, high by international standards. In this backdrop, foregoing huge tax revenues due to concessions extended to SEZs will further restrain the government from providing any additional funds for productive and social sectors since its also carries burden of high interest payment. |
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| The government plans to oil bonds worth Rs 28,000 crore in 2006-07 to help oil companies subsidise oil prices and not pass on the entire increase in global crude prices to consumers. |
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| RBI has sighted issuance oil bonds as one of the factors for influencing a 50 basis points rise in yield on 10-year government security since the end of March 2006. The yield on 10-year paper moved to 8.02 per cent (August 18, 2006) from 5.52 per cent at the end of March 2006. |
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| With the resumption of progress in approaching FRBM targets in 2006-07, reductions in key deficits have been budgeted to fulfil the minimum annual stipulations. Consequently, the scale of deficit reductions in '07-08 and '08-09 will have to be larger to meet the FRBM targets. |
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| Any slippage in achieving the FRBM targets could erode the gains achieved in the initial year of the FRBM. It could also generate a chain effect at the state level to relax targets set out in their fiscal responsibility legislations. |
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| Any deviation from the FRBM targets will have both national and international repercussions in terms of credibility. |
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| The RBI said the growth momentum of recent years was likely to continue in 2006-07 with the economy expected to expand more than 7 per cent for the fourth year in a row. |
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| It said a host of factors including industrial production data, services sector indicators and crop-sowing supported an overall optimistic near-term outlook. It forecast growth of 7.5-8.0 percent in 2006/07. |
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