A “Committee on Financial Sector Assessment (CFSA)” constituted by GOI in consultation with RBI decided to assess financial stability and also compliance with all financial standards and code so that a compact roadmap could evolve with a medium term perspective for the entire financial sector.
A Self Assessment report on Financial Sector Assessment provided by committee with the some observation and recommendations in the year 2009. Following issues remained untouched till date:
>Functional overlapping by the Central Government on the functional domain of State, so that the roles of the Central and State Governments are clearly defined in practice and accountability is appropriately establishedIJ
>No clear laws and regulations related to the collection of revenues and to enhance transparency of Finance Commission awardsIJ
>No suitable recourse mechanisms to reduce delays by the Governments in honoring payments to various entities & individuals and inclusion of time limit in Public-private partnership (PPP) documents within which payment obligations could be honoredIJ
>Discrepancies in reporting of liabilities and deficit at various levels, particularly borrowings by public sector units (PSUs) and no description of major expenditure and revenue measures and clear procedure for budget execution, monitoring and reportingIJ
>No report on recommendations of committee that the States should set up State Finance Commissions and ensure timely submission of reports and report compliance, along with the rationale for rejecting any of the recommendationsIJ
>No systematic manner for providing economic and functional classification of expenditures annually by State GovernmentIJ
>Mode of calculating the fiscal deficit does not at present capture the impact of off-budget items or provide such figures separately.
For example
Budget does not capture off-budget items, such as oil bonds value in the Budget 2012-13 Rs 134423.17 crore, Food Corporation of India bonds value in Budget 2012-13 Rs 15704.72 crore and fertiliser bonds value in the Budget 2012-13 Rs 16200 crore and so on.
>Budget documents do not cover the actual audited expenditure statement nor provide for the reporting of fiscal position of state governments and the finances of Central and State public corporations.
>No Working Group report to restructure and rationalise the budget head structure for reporting expendituresIJ
>No report on Financial Sector Assessment under FSAP (Financial Sector Assessment Programme) a joint initiative of International Monetary Fund (IMF) and the World Bank (WB).
Fiscal Management
Budget estimates for 2013-2014 shows higher Tax collection against the backdrop of a significant improvement in the overall Tax collection in previous years five years. Gross Tax revenue is estimated to increase by 19.06 per cent (Rs 197,833 Crore) from Rs 1,038,037 crore in 2012-2013 to Rs 1,235,870 crore in 2013-2014 due to higher growth estimations.
Major Deficits as a % of GDP (SEE TABlE BElOW)
GDP growth slowing down to 5 per cent in 2012-13, after having grown at the rate of 6.2 per cent in previous years, Saving rates are not going to come back in a hurry, it increased from 32.0 per cent of GDP in 2008-09 to 34.0 per cent in the year 2010-11 and fell to 30.8 per cent in 2011-12.
Fiscal deficit increase by 4.14 per cent (Rs 21,575 crore) from Rs 520,924 crore in 2012-2013 to Rs 542,499 crore in 2013-2014. The share of Fiscal Deficit in total receipts is 32.58 per cent in 2013-2014. Revenue expenditure has increased by Rs 173,096 crore, while Tax Revenue has risen by Rs 141,963 crore.
Fiscal balance of the Central Government beyond its budgeted estimate of 5.1 per cent of GDP besides large subsidy bill with gap in resources will reduce much needed development in areas of Infrastructure, Defense and building of Institutions.
Revenue Deficit has decreased by 2.92 per cent (Rs 11,406 crore) from Rs 391,244 crore in 2012-2013 to Rs 379,838 crore in 2013-2014, while it decreased in the previous year by 0.94 per cent (Rs 3,708 crore) from Rs 394,952 crore in 2011-2012 to Rs 391,244 crore in 2012-2013, mainly estimating higher tax revenue receipts and lesser expenditure on subsidies. The percent of Revenue Deficit to GDP is estimated at 3.34 per cent. Contrast to 2011-2012 and 2012-2013 it was 4.43 and 3.90 percent respectively. The Share of Revenue Deficit in Total Revenue Expenditure is 26.45 per cent in 2013-2014, while it was 30.98 per cent in 2012-2013. The share of revenue deficit in FD would, however, decrease further from 75.11 per cent in 2012-2013 to 70.02 percent in 2013-2014, while it was 75.66 per cent in 2011-12.
All the major “deficits” like, “Revenue”, “Fiscal”, and “Primary” are estimated to be down due to GDP estimates. 23 per cent fall in gold imports and (likely to be more) will further reduce. Current Account Deficit (CAD) in terms of value - while FY13 CAD is estimated at Rs 542000 crores, gold imports are likely to be around Rs 270000 crores The collapse in gold prices and oil prices decline has given India much-needed breathing space but the imperative to increase exports and question remains on FDI flows due to tax policies.
CA VIPIN MAlIK Practicing Chartered Accountant Former Central Board Member of Reserve Bank of India and Bharatiya Reserve Bank of Note Mudran Pvt. ltd.(RBNMPl) (vma@infomerics.com)