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Run-up to the Budget: Economy

Current Economic Scenario

(percentage growth)	1999-2000	2000-01
Gross Domestic Product (Constant Prices)	6.4	6.0
Agriculture	0.7	0.9
Industry	6.1	6.1
Services	9.4	8.4
Money Supply	13.9	16.0
WPI – average for year	3.3	7.0-7.5
CPI – average for year	3.4	5.0-5.5
Fiscal Deficit/GDP	5.6	5.5
Exports	13.2	18
Imports	11.4	7-8
Exchange Rate in Rs (end-March)	43.60	46.80-47.00

Review of 2000-2001: Key Budget Initiatives

Fiscal Deficit

Expected Fiscal Deficit Slippage in 2000-2001

The expected slippage in the fiscal deficit is likely to be around Rs 103.74 bn over the Budget 2000-01 figure of Rs 1112.75 bn. Shortfalls in tax revenues and PSU disinvestment proceeds mainly account for this slippage. Fiscal Deficit/GDP ratio is expected to be at around 5.54% against the budget target of 5.1% of GDP, assuming GDP estimates at market prices for the year 2000-01 at Rs 21974.06 bn.

(in Rs billion)	Budgeted Estimates	% of BE	CRISIL Estimates
	2000-01	till Dec 2000	2000-01
Revenue Receipts	2036.73	65.15	1968.94
Tax Revenues (net)	1462.09	62.65	1394.3
Non-Tax Revenues	574.64	71.5	574.64
Non-Debt Capital Receipts	235.39	31.87	185.39
Total Receipts	2272.12	61.7	2154.33
Non-Plan Expenditure	2503.87	61.53	2533.87
Plan Expenditure	881	57.61	836.95
Total Expenditure	3384.87	60.51	3370.82
Gross Fiscal Deficit	1112.75	58.07	1216.49

The major reasons for the slippage in the fiscal are as follows:

• The net tax revenues are expected to be considerably lower by Rs.67.79 bn than the budget target of Rs.1462.09 bn for 2000-01. The net direct tax collections of the Centre are expected to be marginally lower by Rs.8.24 bn primarily due to lower corporation tax collections. Lacklustre performance by the industry can be cited as one of the main reasons for lower corporate tax collections. A negative growth in non-oil imports is expected to result in a sharp slippage by Rs.59.55 bn. in net indirect tax collections of the Centre. Custom duties are expected to fall short to the tune of Rs.34 bn than the budget target of Rs.535.72 bn.
• The target of Rs 100 bn for PSU disinvestment for the financial year 2000-01 is unlikely to be achieved in the last quarter. Till end-Jan, 2001 the disinvestment proceeds amounted to Rs 2.4 bn. A conservative shortfall to the tune of Rs 50 bn is expected for the whole year.
• Non-Plan expenditure is estimated at around Rs 2533.87 bn. vis-à-vis the budget target of Rs.2503.87 bn, a slippage of Rs.30 bn mainly on account of expenditure towards Gujarat earthquake relief measures.
• Plan expenditure is expected to be lower by Rs.44 bn. Till Dec 2000, plan expenditure accounted for only 58% of the budget target.

The slippages are thus likely to lead to a Fiscal Deficit figure of Rs 1216.49 bn vis-à-vis the budget target of Rs.1112.75 bn, or 5.54% of GDP.

Review of Budget 2000-2001:

Budget 2000-2001 announcements	Achievements
Fiscal Issues   To curb built-in expenditure growth and bring about structural changes in the composition of expenditure.   All subsidies to be reviewed   Rs 10,000 Cr target from PSU disinvestment for the year 200-01out of which Rs 1000Cr to be earmarked for retiring Govt. debt.	Slippage seen in the fiscal deficit/GDP ratio to around 5.54% of GDP, leading to an overshooting of government’s borrowing. PSU disinvesments are at only Rs 2 bn only till December 2000. Further, non-plan expenditure is likely to overshoot target due to additional expenditures for Gujarat earthquake relief measures. Although direct tax collections have been healthy, indirect tax collections, especially customs collections are expected to be significantly lower.
Agriculture   Institutional Credit flow to agriculture targeted to a level of Rs. 51,500 crore, a 20% increase over last year flows.   Setting up of a National Commission on Land Use Policy.   Corpus of RIDF VI to be increased to Rs 4,500Cr with interest on it to be reduced by half a percent.   Micro Finance Development fund to be created to boost Micro credit for agriculture in the country	Reforms process yet to take off in agricultural sector. The sector still is largely dependent on monsoon and has exhibited volatile growth over the years. Growth in agriculture sector has been languishing below 1% for two consecutive years in 1999-2000 and 2000-01 at 0.7% and 0.9% respectively.
Industry   A major liberalisation of the tax treatment for Venture Capital funds.   Boost to knowledge-based   The policy of acquisition of companies abroad esp. in Knowledge based sector by Indian corporates to be liberalized.	Knowledge based sectors, particularly software industry has witnessed robust growth at the rate of 35-40% p.a. The manufacturing sector has however experienced a slow down with prevailing excess capacities and lower domestic demand. Manufacturing sector is expected to grow at 6.4% in 2000-01(Adv. Estimates, CSO) lower than 6.8% growth achieved in 1999-2000 (Quick Estimates, CSO)
Infrastructure Plan outlay for Central PSUs in the power sector increased from Rs 76.26 bn to Rs 9,1.94 bn Additional Central assistance of Rs 10 bn for state and UT government for Power sector reforms.	Reforms in the power sector have not progressed adequately. The financial viability of SEBs continues to be a serious problem. There is a dire need for clear and transparent policies in infrastructure sector to attract private capital.

Fiscal issues

Key Objective: Implement steps towards fiscal consolidation

Expectations from Budget 2001-2002	Benefits
Further rationalisation of the excise tax structure -- The number of special excise duties expected to be reviewed to simplify the existing tax structure   On the customs side, peak import tariff rates expected to decline to 30% from the current level of 35% and slabs on customs expected to be further reduced to reap the benefits of globalisation.	Simplification of tax structures leads to improved tax collections. Further rationalisation in excise and reduction in customs will enable the economy to achieve higher tax revenues and reap the benefits of globalisation.
Direct tax rates structure is expected to remain unchanged. Surcharge expected to continue   Emphasis would be on widening of the tax base through selective taxation of the services sector.	Widening the tax base – an imperative- will help in improving the net tax-GDP ratio from its current level of 6.7%
PSU disinvestment targets expected to be scaled up.	A concerted effort in PSU disinvestment will help reduce government’s fiscal burden considerably.
Fiscal Deficit/GDP ratio for 2001-2002 is expected to be at 4.8% of GDP.   A road map for Fiscal Responsibility and budget management is likely to be introduced, to create a fiscal focus for the medium to long term. FRA would involve generation of revenue surpluses to reduce high cost debt.	Would lead to fiscal consolidation in the medium term at the Centre

Agriculture

Key objective: Increase productivity and output through addressing credit needs. Need to reduce volatility of agricultural production and initiate a framework for sustaining industrial growth.

Expectations from Budget 2001-2002	Benefits
Provisioning for Accelerated Irrigation Benefit Programme is expected to be enhanced   Public investment in agriculture likely to focus on handling and storage of foodgrains   Buffer stock operations to be reviewed	Improved irrigation infrastructure would help reduce the reliance of this sector on monsoons and help reduce the volatility in agricultural growth . Efficient buffer stock operations will minimise foodgrain losses.

FDI Inflows

Key Objective: To enhance the flow of funds into the economy through the FDI route

Expectations from Budget 2000-2001	Benefits
Fresh and higher caps for FDI are likely to be announced with a further boost to knowledge based industries	Would help the country attract a larger amount of FDI. The FDI flows touched Rs.4.5 bn in 2000. Budget initiatives need to be combined with clear policies in various sectors, particularly in infrastructure. Higher private capital flows especially FDI flows will enable India to move on a higher growth trajectory.

Fiscal Deficit: 2001-2002

(in Rs Billion)	Budgeted Estimates	% of BE	CRISIL Estimates	CRISIL Estimates
	2000-01	till Dec 00	2000-01	2001-02
Revenue Receipts	2036.73	65.15	1968.94	2288.8708
Tax Revenues (net)	1462.09	62.65	1394.3	1645.274
Non-Tax Revenues	574.64	71.5	574.64	643.5968
Non-Debt Capital Receipts	235.39	31.87	185.39	304.35
Total Receipts	2272.12	61.7	2154.33	2593.2208
Non-Plan Expenditure	2503.87	61.53	2533.87	2812.596
Plan Expenditure	881	57.61	836.95	945.7535
Total Expenditure	3384.87	60.51	3370.82	3758.3492
Gross Fiscal Deficit	1112.75	58.07	1216.49	1165.1284

Assumptions:

• Tax revenues expected to grow by 18% in 2001-02 over CRISIL estimates for 2000-01
• Non tax revenues expected to grow by 12% in 2001-02
• PSU disinvestments expected to be around Rs.150 bn
• Recoveries of loans to grow by 14%
• Non Plan expenditure to grow by 11%
• Plan expenditure to grow by 13%

Budget 2001-02 is likely to announce a fiscal deficit of Rs.1165.13 bn. This is around 4.8% of GDP for 2001-02 at Rs.24501.07 bn.

Disclaimer: CRISIL has taken due care and caution in compiling this report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of its web site.

Rediff-CRISIL Budget Impact Analysis

Budget 2001

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