Chapter 3

CHAPTER 3
Fiscal Developments and Public Finance
I n a developing economy, demand for

resources for providing the economic and social
infrastructure needs have to be balanced with its
legislations. The fiscal situation of the States has
shown considerable improvement, which in fact is
even better relative to the performance of the
resource generating capacity. Since the sectoral Central Government, post-FRBMA. As a proportion
claims on resources are enormous, there is often of GDP, the fiscal deficit of the States declined
a danger of profligacy leading to fiscal imbalances from 4.4 per cent in 2003-04 to 2.3 per cent in
endangering macro fundamentals of the economy. 2007-08 (BE). The aggregate revenue deficit of the
At the beginning of reforms in 1991, the fiscal States was 0.1 per cent in 2006-07 (RE). States
imbalances were identified as the root cause of on a consolidated basis are expected to have a
the balance of payments crisis and domestic revenue surplus of 0.3 per cent of GDP in 2007-
inflation. The fiscal consolidation, which followed
08. A strong incentive-based fiscal transfers
in response, however, failed to sustain itself as it
lacked a statutory mandate and the required
institutional support. The enactment of the Fiscal Table 3.1 Trends in deficits of Central
Responsibility and Budget Management Act Government
(FRBMA), 2003 provided the required mandate
Year Fiscal Revenue Primary Revenue
and lent credibility to the fiscal reforms process. deficit deficit deficit deficit as
3.2 The fiscal deficit of the Centre as a per cent
of fiscal
proportion of GDP came down from 5.9 per cent deficit
in 2002-03 to 3.4 per cent in 2006-07 and is
(As per cent of GDP)
estimated to further decline to 3.3 per cent in
1996-97 4.1 2.4 -0.2 58.2
2007-08 (BE) (3.2 per cent based on revised GDP
1997-98 4.8 3.0 0.5 63.5
estimates) (Table 3.1). Similarly, the revenue deficit
1998-99 5.1 3.8 0.7 74.8
declined from 4.4 per cent in 2002-03 to 1.9 per 1999-2000 5.4 3.5 0.7 64.6
cent in 2006-07 and is estimated to further decline 2000-01 5.7 4.1 0.9 71.7
to 1.5 per cent in 2007-08 (BE) (Figure 3.1). The 2001-02 6.2 4.4 1.5 71.1
revenue deficit as a percentage of fiscal deficit 2002-03 5.9 4.4 1.1 74.4
has declined from 79.7 per cent in 2003-04 to
Enactment of FRBMA
56.3 per cent in 2006-07 and it is further estimated
to improve to 47.4 per cent in 2007-08 (BE) 2003-04 4.5 3.6 0.0 79.7
implying a progressively better utilization of 2004-05 4.0 2.5 -0.1 62.6
borrowed resources towards asset creation. 2005-06 4.1 2.6 0.4 63.0
2006-07 3.4 1.9 -0.2 56.3
3.3 States have also joined the process of 2007-08(BE) 3.2 1.5 -0.2 47.4
fiscal consolidation in line with the Twelfth Finance Source : Budget documents.
Commission’s (TFC) recommendations and are
Note: 1. The ratios to GDP at current market prices
complementing the efforts of the Central
are based on CSO’s new 1999-2000
Government. As recommended by TFC and series.
following the example of the Central Government, 2. Fiscal deficit excludes transfer of States’
26 States have already enacted fiscal responsibility share in small savings collections.
32 ECONOMIC SURVEY 2007-2008
Figure 3.1 Trends in deficits of Central Government

7
6 Fiscal
Percentage of GDP
Deficit
5
4
3 Revenue
Deficit
2
1
0 Primary
Deficit
-1
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08(BE)
Years
(proposed by TFC) by embedding in it a framework an increase of gross tax revenue of the Central
of fiscal consolidation has played an important Government by 19.5 per cent over 2005-06 (RE).
role in this success. This was based on a projected rate of growth for
corporate income tax and personal income tax of
CENTRAL GOVERNMENT 28.4 per cent and 16.9 per cent, respectively. The
FINANCES realized growth rates in 2006-07 over 2005-06 (RE)
of gross tax revenue, corporate income tax and
3.4 Robust economic growth and improved
personal income tax were 27.4 per cent, 39.3 per
performance of the manufacturing and services
cent, and 29.2 per cent, respectively. In case of
sectors helped to keep tax revenues buoyant
customs and excise duties, the budget had
during the last five years. Average annual growth
estimated a growth of 20 per cent and 6.3 per
of revenue receipts of the Central Government
cent, respectively. Though the realized growth in
between 2003-04 and 2007-08 (BE) was 16.2 per
customs was much higher at 34.4 per cent, in the
cent. Improved growth of tax revenue (net to Centre)
case of excise duty it was lower at 5 per cent.
at 20.7 per cent during the same period generated
The revenue receipts from service tax at 63.5 per
an overall high growth of revenue receipt (Table
cent as against 50 per cent envisaged in the 2006-
3.2). Gross tax revenue of the Central Government
07 Budget were particularly buoyant. Higher direct
recorded an average annual growth of 20.5 per
taxes, service tax and customs duty collections
cent, higher than the 13.8 per cent rate of growth
led to overall increase in gross tax collections
of GDP (at market prices) during this period. The
from Rs. 4,42,153 crore as projected in 2006-07
gross tax-GDP ratio, which had stagnated at 8-10
(BE) to Rs. 4,71,512 crore in 2006-07 (Actual).
per cent range for more than a decade, increased
Non-tax revenue, which was projected to grow at
to 11.4 per cent in 2006-07 and is expected to
2.6 per cent, actually grew at the rate of 11.9 per
improve further to 11.8 per cent in 2007-08 (BE)
cent, mainly due to increase in other non-tax
(11.7 per cent based on revised GDP estimates)
revenues from Rs. 28,924 crore in
(Table 3.3). Revenue expenditure during this period
2005-06 (Actual) to Rs. 31,769 crore in 2006-07
recorded lower average annual growth of 10.6 per
(Actual) and increase in dividend and profits from
cent leading to a reduction in revenue deficit in
Rs. 25,451 crore to Rs. 29,309 crore during the
both absolute terms and also relative to GDP.
same period.
Growth of plan expenditure at 13.1 per cent was
higher compared to the growth in non-plan 3.6 The revenue expenditure in 2006-07
expenditure of 9.7 per cent during the same period (Actual) grew by 17 per cent and was higher than
(Figure 3.2). the budgeted expenditure by 5.4 per cent. Capital
expenditure on the other hand recorded a moderate
Central Government finances, 2006-07
growth of 3.6 per cent and was lower than the
3.5 The revenues for 2006-07 have exceeded budgeted expenditure by 9.3 per cent. This was
expectations. The Budget for 2006-07 had projected mainly because of a decline in non-plan capital
website:http://indiabudget.nic.in
FISCAL DEVELOPMENTS AND PUBLIC FINANCE 33
Table 3.2 Receipts and expenditure of the Central Government
2002-03 2003-04 2004-05 2005-06 2006-07 2006-07 2007-08
(B.E.) (B.E.)
(Rs. crore)
1. Revenue receipts (a+b) 230834 263813 305991 347462 403465 434387 486422
(a) Tax revenue 158544 186982 224798 270264 327205 351182 403872
(net of States’ share)
(b) Non-tax revenue 72290 76831 81193 77198 76260 83205 82550
2 . Revenue expenditure 338713 362074 384329 439761 488192 514608 557899
of which:
(a) Interest payments 117804 124088 126934 132630 139823 150272 158995
(b) Major subsidies 40716 43535 44753 44480 44792 52935 51247
(c) Defence expenditure 40709 43203 43862 48211 51542 51681 54078
3. Revenue deficit (2-1) 107879 98261 78338 92299 84727 80221 71477
4. Capital receipts 182414 207390 192261 158661 160526 148999 194099
of which:
(a) Recovery of loansa 34191 67165 62043 10645 8000 5892 1500
(b) Other receipts 3151 16953 4424 1581 3840 534 41651 b
(mainly PSU disinvestment)
(c) Borrowings and other
liabilities c 145072 123272 125794 146435 148686 142573 150948
5. Capital expenditure 74535 d 109129 d 113923 d 66362 75799 68778 122622
6. Total expenditure 413248 471203 498252 506123 563991 583386 680521
[2+5=6(a)+6(b)]
of which:
(a) Plan expenditure 111470 122280 132292 140638 172728 169860 205100
(b) Non-plan expenditure 301778 348923 365960 365485 391263 413526 475421
7. Fiscal deficit [6-1-4(a)-4(b)] 145072 123272 125794 146435 148686 142573 150948
8. Primary deficit 27268 -816 -1140 13805 8863 -7699 -8047
[7-2(a)=8(a)+8(b)]
(a) Primary deficit consumption 38607 25037 -275 250 -16864 -28841 -87518
(b) Primary deficit investment -11339 -25853 -865 13555 25727 21142 79471
1. Revenue receipts (a+b) 9.4 9.6 9.7 9.7 9.7 10.5 10.4
(a) Tax revenue 6.5 6.8 7.1 7.5 7.9 8.5 8.6
(net of States’ share)
(b) Non-tax revenue 2.9 2.8 2.6 2.2 1.8 2.0 1.8
2. Revenue expenditure 13.8 13.1 12.2 12.3 11.8 12.4 11.9
of which:
(a) Interest payments 4.8 4.5 4.0 3.7 3.4 3.6 3.4
(b) Major subsidies 1.7 1.6 1.4 1.2 1.1 1.3 1.1
(c) Defence expenditure 1.7 1.6 1.4 1.3 1.2 1.2 1.2
3. Revenue deficit (2-1) 4.4 3.6 2.5 2.6 2.0 1.9 1.5
4. Capital receipts 7.4 7.5 6.1 4.4 3.9 3.6 4.1
of which:
(a) Recovery of loansb 1.4 2.4 2.0 0.3 0.2 0.1 0.0
(b) Other receipts 0.1 0.6 0.1 0.0 0.1 0.0 0.9
(mainly PSU disinvestment)
(c) Borrowings and other liabilities d 5.9 4.5 4.0 4.1 3.6 3.4 3.2
5. Capital expenditure 3.0 4.0 3.6 1.9 1.8 1.7 2.6
6. Total expenditure [2+5=6(a)+6(b)] 16.8 17.1 15.8 14.1 13.6 14.1 14.5
of which:
(a) Plan expenditure 4.5 4.4 4.2 3.9 4.2 4.1 4.4
(b) Non-plan expenditure 12.3 12.7 11.6 10.2 9.4 10.0 10.1
7. Fiscal deficit [6-1-4(a)-4(b)] 5.9 4.5 4.0 4.1 3.6 3.4 3.2
8. Primary deficit [7-2(a)=8(a)+8(b)] 1.1 0.0 0.0 0.4 0.2 -0.2 -0.2
(a) Primary deficit consumption 1.6 0.9 0.0 0.0 -0.4 -0.7 -1.9
(b) Primary deficit investment -0.5 -0.9 0.0 0.4 0.6 0.5 1.7
Memorandum items (Rs. crore)
(a) Interest receipts 37622 38538 32387 22032 19263 21371 19308
(b) Dividend and profit 10910 12326 15934 18549 18969 18904 21902
(c) Non-plan revenue expenditure 267144 283436 296835 327903 344430 372190 383545
Source: Budget documents.
a Includes receipts from States on account of Debt Swap Scheme for 2002-03, 2003-04, and 2004-05.
b Includes an amount of Rs. 40,000 crore on account of transaction relating to transfer of RBI’s stake in SBI to the Government.
c Does not include receipts in respect of Market Stabilization Scheme, which will remain in the cash balance of the Central Government
and will not be used for expenditure.
d Includes repayment to National Small Savings Fund.
Note:1. The ratios to GDP at current market prices are based on CSO’s new 1999-2000 series.
2. The figures may not add up to the total because of rounding approximations.
3. Primary deficit consumption =Revenue deficit-interest payments+interest receipts+dividend & profits.
4. Primary deficit investment =Capital expenditure-interest receipts -Dividend & profits-recovery of loans-other receipts.
5. Figures are exclusive of the transfer of States’ share in the small savings collections.
Figure 3.2 Receipts and expenditure of the Central Government

16.0
14.0 Revenue
Percentage of GDP
Receipts
12.0
10.0 Revenue
Expenditure
8.0
6.0 Capital
Expenditure
4.0
2.0 Capital
Receipts
0
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08(BE)
Years
expenditure. Higher growth in revenues relative to Budgetary developments in 2007-08

the growth in revenue expenditure resulted in a
3.7 Both the FRBMA with its medium term
decline in revenue deficit to 1.9 per cent of GDP. fiscal objectives and the National Common
Growth in total expenditure in 2006-07 at 15.3 per Minimum Programme (NCMP) with its economic
cent was even lower and reflected in a moderation reforms objectives remained important
in the ratio of fiscal deficit to GDP to 3.4 per cent considerations in formulating the Budget 2007-08.
as against the budget estimate of 3.6 per cent. The year 2007-08 is also the first year of the
Table 3.3 Sources of tax revenue

1995-96 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Accounts Accounts Accounts Accounts Accounts Accounts (BE)
(Rs. crore)
Direct (a) 33563 83085 105090 132181 165202 230174 267490
Personal Income tax 15592 36866 41387 49268 63629 85561 98774
Corporation tax 16487 46172 63562 82680 101277 144306 168401
Indirect (b) 76806 131284 147294 170936 199348 241536 279190
Customs 35757 44852 48629 57611 65067 86327 98770
Excise 40187 82310 90774 99125 111226 117612 130220
Service tax 862 4122 7891 14200 23055 37597 50200
Gross tax revenue a 111224 216266 254348 304958 366152 471512 548122
(Tax revenue as a percentage of gross tax revenue)
Direct (a) 30.2 38.4 41.3 43.3 45.1 48.8 48.8
Personal Income tax 14.0 17.0 16.3 16.2 17.4 18.1 18.0
Corporation tax 14.8 21.3 25.0 27.1 27.7 30.6 30.7
Indirect (b) 69.1 60.7 57.9 56.1 54.4 51.2 50.9
Customs 32.1 20.7 19.1 18.9 17.8 18.3 18.0
Excise 36.1 38.1 35.7 32.5 30.4 24.9 23.8
Service tax 0.8 1.9 3.1 4.7 6.3 8.0 9.2
(Tax revenue as a percentage of gross domestic product b )
Direct (a) 2.8 3.4 3.8 4.2 4.6 5.6 5.7
Personal Income tax 1.3 1.5 1.5 1.6 1.8 2.1 2.1
Corporation tax 1.4 1.9 2.3 2.6 2.8 3.5 3.6
Indirect (b) 6.4 5.3 5.3 5.4 5.6 5.8 5.9
Customs 3.0 1.8 1.8 1.8 1.8 2.1 2.1
Excise 3.4 3.4 3.3 3.1 3.1 2.8 2.8
Service tax 0.1 0.2 0.3 0.5 0.6 0.9 1.1
Total a 9.3 8.8 9.2 9.7 10.2 11.4 11.7
a
includes taxes referred in (a) & (b) and taxes of Union Territories and “other” taxes.
b
Refers to gross domestic product at current market prices.
Note: 1. Direct taxes also include taxes pertaining to expenditure, interest, wealth, gift and estate duty.
2. The ratios to GDP at current market prices are based on CSO’s new 1999-2000 series.
Eleventh Five Year Plan with the declared objective Revenue and capital receipts
of “Faster and more inclusive growth”. With growth 3.10 During the Tenth Five Year Plan, the
accelerating from 5.5 per cent per annum during buoyancy of tax revenue, with an average annual
the Ninth Five Year Plan to 7.8 per cent per annum growth of 21.4 per cent concided with an
during the Tenth Five Year Plan, the Eleventh Five acceleration in the growth of GDP. Considering
Year Plan has targeted an average growth of 9 per such a performance, 2007-08 (BE) projected an
cent. Consequently, gross budgetary support increase of 23.4 per cent in tax revenues over
(GBS) for the annual plan 2007-08 was increased 2006-07 (BE). Non-tax revenue, during the same
by 20.7 per cent from Rs.1,69,860 crore in 2006- period was budgeted to increase by 8.2 per cent.
07 (Actual) to Rs. 2,05,100 crore in 2007-08 Capital receipts, comprising the non-debt capital
(BE). The budget support to the Central Plan was receipts and borrowings and other liabilities, were
placed at Rs. 1,54,939 crore in 2007-08 (BE). projected to increase by 20.9 per cent in 2007-08
(BE) over 2006-07 (BE). The increase in non-debt
3.8 Bharat Nirman, a time-bound plan for rural capital receipts from Rs. 11,840 crore in 2006-07
infrastructure by the Government of India in (BE) to Rs. 43,151 crore in 2007-08 (BE) was,
partnership with State Governments and however, due to the inclusion of Rs. 40,000 crore
Panchayati Raj Institutions, remained the on account of transaction relating to transfer of
cornerstone of the Government’s policy. The RBI stake in SBI to the Government (Table 3.2).
allocation for Bharat Nirman (including NER 3.11 The shift in the structure of taxes from
component) was increased by 31.6 per cent to relatively regressive indirect taxes to direct taxes
Rs. 24,603 crore in the 2007-08 Budget. The eight continued in 2007-08. The direct tax to GDP ratio
flagship programmes of the Government continued has seen an uptrend because of the reforms in
to receive high priority and significant increase in income and corporate taxes that simplified the
allocations were made in Sarva Siksha Abhiyan, tax system, reduced exemptions and tax rates,
Mid-day Meal Scheme, Rajiv Gandhi Drinking thus providing an incentive for better compliance.
At the same time indirect tax GDP ratio has fallen
Water Mission, Total Sanitation Campaign, National
because of reduction in custom duties and
Rural Health Mission, Integrated Child Development
increasing exemptions in excise taxes. The
Programme, National Rural Employment Guarantee
proportion of direct taxes to gross tax collections
Scheme and Jawaharlal Nehru National Urban of the Central Government, which had increased
Renewal Mission. from 30.2 per cent in 1995-96 to 45.1 per cent in
2005-06 attained the level of 48.8 per cent in 2006-
3.9 At the time of formulation of 2007-08
07. This is estimated to remain at the same level
Budget only the approach paper to the Eleventh
in 2007-08 though, compared to 2006-07 (BE), it
Five Year Plan was available. The above-mentioned represents an increase of 1.2 percentage points.
gross budgetary support for the 2007-08 plan of The direct tax-GDP ratio, which was only 2.8 per
Rs. 2,05,100 crore was called Plan “A”. To address cent in 1995-96, improved to 5.6 per cent in 2006-
the need for additional resources, once the Eleventh 07 and is budgeted at 5.7 per cent in 2007-08.
Five Year Plan was finalized, a Plan “B” was also With indirect tax-GDP ratio stabilizing at 5.3 to
drawn up to take new initiatives in critical areas. 5.8 per cent in the Tenth Five Year Plan, it has
It was emphasized that additional resources would been budgeted at 5.9 per cent of GDP in 2007-08.
The gross tax-GDP ratio is projected to increase
be mobilized through better tax administration to
to 11.8 per cent in 2007-08 (BE) (Table 3.3 and
the extent of Rs. 7,000 crore during the course of
Figure 3.3).
the year. This was to be allocated amongst sectors
such as agriculture, rural development, health, Tax measures
women and child development, urban infrastructure Direct taxes
and water resources. The Eleventh Five Year Plan 3.12 Rising income tax collections and better
was approved by the NDC on December 19, 2007. tax compliance by individuals allowed the
The revenue receipts up to April-December have Government to raise the basic exemption limit for
been buoyant and by the end of financial year the all assesses from Rs. 1,00,000 to Rs. 1,10,000.
revenue realization targets are expected to Similar increase in exemption limits were provided
be met. to women assessees and senior citizens. The
Figure 3.3
Percentage of Gross Tax Revenue Composition of gross tax revenue
45.0
40.0 Excise
35.0
Customs
30.0
25.0 Corporate
Tax
20.0
15.0 Personal
Income Tax
10.0
5.0 Service
Tax
0
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08(BE)
Years
deduction in respect of medical insurance premium business of biotechnology or in the business of

was also increased by Rs. 5000 for all assessees. manufacture or production of any drugs,
The surcharge on income tax for all firms and pharmaceuticals, electronic equipment, computers,
companies with a taxable income of Rs. 1 crore or telecommunication equipment, chemicals or any
less was removed. An additional cess of 1 per cent other article or thing notified by the Board was
on the amount of income tax inclusive of surcharge allowed for a further period of 5 years from March
termed as “Secondary and Higher Education Cess” 31, 2007 to March 31, 2012. A package of fiscal
was, however, introduced. This was to fulfil the incentives and other concessions for the North-
commitment of the Government to provide and East Region, namely, the North-East Industrial
finance secondary and higher education. Several and Investment Promotion Policy (NEIIPP) 2007
other tax incentives and simplification measures were provided. Bonds issued by NABARD and
were also introduced in Budget 2007-08 as indicated notified by the Central Government were included
below. in Section 80C as an additional investment avenue
3.13 The procedural reforms in direct taxes for investors seeking tax benefit.
remained focused on expanding the tax base, Indirect taxes
improving tax compliance and making the tax
Customs Duties
administration more efficient. At the same time
certain new initiatives and exemptions were 3.14 As part of a continuous process of bringing
provided to promote physical infrastructure, about a moderate, rational and simplified tax
research and development in industry, development structure and to reduce rates to ASEAN levels as
of the North-Eastern Region, and agriculture. To per announced commitments, the peak rate of
enable urban local bodies to raise funds for capital customs duty on non-agricultural products was
investment in urban infrastructure, exemption was reduced from 12.5 per cent in 2006-07 to 10 per
provided on interest on notified bonds issued by a cent in 2007-08, with a few exceptions.
notified State Pooled Finance Entity on behalf of
3.15 Some of the important changes in the
the urban local bodies. To provide adequate stock
customs duty structure were as follows:
of hotel rooms for the Commonwealth Games to
be hosted in Delhi in 2010 and also to boost the 1. To give a boost to the farm sector, customs
number of convention centres, deduction was duty on food processing machinery,
allowed in respect of profits and gains derived sprinklers and drip irrigation system used for
from the business of hotels and convention centres agriculture and horticulture purposes was
in the National Capital Territory of Delhi and districts reduced. Customs duty on refrigerated motor
of Faridabad, Gautam Budh Nagar, Ghaziabad and vehicles was reduced to Nil. Countervailing
Gurgaon. Weighted deduction for expenditure on duty on these vehicles was also reduced to
scientific research on approved in-house R&D 8 per cent in line with a reduction in excise
facility in the case of a company engaged in the duty for these vehicles.
2. To contain inflation in essential commodities, with lower retail prices to make it more
customs duty on wheat was reduced to affordable and to incentivise the industry to
zero and duty on edible oils was reduced reduce their retail selling prices. Excise
considerably. Duty on crude palm oil was duty on cement with retail sale price not
reduced in two tranches from 60 per cent exceeding Rs 190 per bag of 50 kgs (Rs
before budget to 45 per cent effective July 3800 per tonne) was reduced to Rs 350 per
23, 2007. Duty on refined palm oil was tonne. Cement with retail sale price of Rs
reduced by 15 percentage points to 52.5 190-250 (Rs 3800- Rs 5000 per tonne) was
per cent. Duty on soybean oil was also to attract a duty of 12 per cent advaloram.
reduced from 45 per cent to 40 per cent. A Excise duty on cement above Rs 250 per
20 percentage point reduction in duty on bag of 50 kgs (Rs 5000 per tonne) was raised
sunflower crude and refined oil was also to Rs 600 per tonne.
effected. The tariff values of palm and soya
4. Cement manufactured in mini cement
bean oils were kept unchanged at their July
plants, however, attracted a lower duty.
2006 and September 2006 levels,
Excise duty was reduced from Rs 250 per
respectively, so as to reduce the actual
tonne to Rs 220 per tonne for cement with
incidence of these duties on domestic
a declared retail price not exceeding Rs
prices.
190 per bag (Rs 3800 per tonne). For
3. Duty was reduced on medical equipments, cement with a declared retail price
metals and their inputs, some inorganic exceeding this, excise duty rates were
chemicals and polyester staple fibres to raised to Rs 370 per tonne from Rs 250 per
reduce the cost of imported goods for tonne earlier.
domestic industry/users.
5. An education cess of 1 per cent to finance
4. In order to conserve mineral resources, an Secondary and Higher Education was also
export duty of Rs 50 per tonne on iron ore made applicable to excise duties.
fines with Fe content of 62 per cent or below
was imposed. Export duty on other iron ore 6. Water purification equipments based on ultra-
exports was fixed at Rs 300 per tonne. filtration technology using polysulphone
membranes were fully exempted from excise
5. Education cess at the rate of 1 per cent on
duty.
total import duties to finance Secondary and
Higher Education was also levied. 7. The rate of excise duty on fibre board, particle
board and similar board was reduced from
Excise Duties 16 per cent to 8 per cent, effective May 3,
2007.
3.16 Performance of revenues from excise duty
has been relatively slow with average growth of Service tax — a promising source of revenue
10.2 per cent during 2002-07. It is budgeted to
increase by 10.7 per cent in 2007-08 over 2006- 3.18 Service tax was introduced in 1994-95 to
07 (Actual). The overall process of rationalization redress the asymmetric and distortionary treatment
of the excise duty structure also continued during of goods and services in the tax framework and to
the year. widen the tax net. It has been a buoyant source
of revenue in recent years. The number of services
3.17 In case of excise duties, the following liable for taxation was raised from 3 in 1994-95 to
important changes were announced: 6 in 1996-97, and then gradually to 100 in 2007-
1. To improve competitiveness of the small scale 08. In 2007-08 Budget, certain services were
sector, the exemption limit for SSI sector specified as taxable services, scope of some of
was raised from Rs 1 crore to Rs 1.5 crore. the specified taxable services was changed,
2. Ad valorem component of excise duty on threshold limit for small service providers was
Petrol and High Speed Diesel was reduced increased and certain exemptions were announced.
from 8 per cent to 6 per cent. As in the case of other taxes, a cess of 1 per
3. In cement sector, new rates were announced cent was imposed on service tax to finance
to reduce the incidence of taxes on cement Secondary and Higher Education (Box 3.1). The
Box 3.1 Service Tax
A. Following services were individually specified as taxable services:

Telecommunication service (includes various telecommunication related services which are presently
specified as separate taxable services);
Services outsourced for mining of mineral, oil or gas;
Services provided in relation to renting of immovable property, other than residential properties and
vacant land, for use in the course or furtherance of business or commerce;
Development and supply of content for use in telecommunication services, advertising agency services
and online information and database access or retrieval services;
Asset management services including portfolio management and all forms of fund management service
provided by any person, except a banking company or a financial institution including a non-banking
financial company or any other body corporate or commercial concern;
Design services;
Services provided in relation to the execution of a works contract.
B. Changes made in the scope of specified taxable services:

To include (a) sale of space in business directories, yellow pages and trade catalogues which are
primarily meant for commercial purposes under sale of space or time for advertisement service, (b)
renting of motor vehicles capable of carrying more than 12 passengers under rent-a-cab service. Motor
vehicle or maxicab rented to an educational body, other than a commercial training and coaching centre,
will be excluded from the scope of the service, (c) services provided in relation to marriage functions
under mandap keeper service, pandal or shamiana service and event management service, and (d)
computer hardware engineering consultancy under consulting engineer’s service.
To amend (i) Banking and other financial services, so as to (a) substitute the words “any other person”
with “commercial concern” in the definition of taxable service (b) include cash management within its
scope; and (c) explain the term “financial leasing”.
To amend management consultant service so as to rename it as management or business consultant
service and to include explicitly business consultancy within is scope.
To clarify that (i) Recruitment or supply of manpower service includes services in relation to (a) pre-
recruitment screening, (b) verifying the credentials and antecedents of the candidate; and (c) authenticity
of documents submitted by the candidates.
To clarify that “goods” referred to in management, maintenance or repair service includes computer
software.
C. Threshold limit for small service providers

The threshold limit for small service providers was increased from Rs. 4 lakh to Rs. 8 lakh in a year.
D. Secondary and Higher Education Cess:

Cess of 1 per cent was imposed to finance Secondary and Higher Education on the service tax leviable.
E. Exemptions
All taxable services provided by Technology Business Incubators (TBI)/ Science and Technology
Entrepreneurship Parks (STEP) recognized by National Science and Technology Entrepreneurship Board
of Department of Science & Technology (also known as “incubators”);
Taxable services provided by an incubatee (entrepreneur) whose total business turnover in a year does
not exceed Rs. 50 lakh and is located within the premises of an incubator, subject to specific conditions;
Services provided by resident welfare association to their members, where the monthly contribution of
a member does not exceed Rs. 3,000 per month.
Services provided in relation to electronic delivery of cinema in digital form after encryption electronically;
Technical testing and analysis services provided in relation to testing of new drugs, including vaccines
and herbal remedies, on human participants by a Clinical Research Organisation (CRO) approved to
conduct clinical trials by the Drugs Controller General of India.
rate of service tax was retained at 12 per cent. cent in 1995-96 to 5 per cent in 2006-07. Decline
Revenue from service tax, as the combined was also sharp for non-POL products. Food
outcome of expanding tax net, creeping rate, and products, paper and newsprint and natural fibres,
buoyant service sector growth increased rapidly however, did not experience a decline. In case of
from a paltry Rs. 407 crore in 1994-95 to Rs. paper and newsprint and natural fibres the collection
37,484 crore in 2006-07 (Prov.) and is budgeted to rate has remained low. Collection rate for chemicals,
increase to Rs. 50,200 crore in 2007-08 (Table metals and capital goods also witnessed a decline.
3.4). Lower rates for these products significantly
contributed to acceleration in growth of these
Collection rates sectors and in improving overall competitiveness of
3.19 The peak rate of basic customs duty was domestic industry (Table 3.5 and Figure 3.4).
brought down progressively from 150 per cent in Tax expenditure
1991-92 to 10 per cent on non-agricultural products
in the Budget for 2007-08 with a few exceptions. 3.20 According to the “Statement of Revenue
Owing to the calibrated reduction in custom duty, Foregone”, tabled along with Budget documents
though resulting in a deceleration in the growth of of Budget 2007-08, the provisional tax expenditure
revenue from it, there was an improvement in in 2005-06 was estimated to be Rs. 2,06,700 crore.
competitiveness of domestic industries and For 2006-07, it was estimated to be Rs. 2,35,191
acceleration in the growth of manufacturing. Revenue crore. The exemptions and incentives in the tax
from custom duty, in addition to the basic customs laws, which result in these tax expenditures, distort
duty, also includes additional duty, which is the resource allocation by impinging upon the
counterpart of the excise duty on domestically efficiency of the market. Further, they complicate
produced items, and special additional duty, a very the tax laws, increase litigation and raise the
partial counterpart of State taxes on domestic compliance cost for the taxpayers and the tax
goods. While the basic duty is the base level of administration. Tax incentives and exemptions are
protection to domestic industry, additional and being continuously reviewed so as to eliminate or
special duties are in the nature of providing a level provide a sunset clause to those that have outlived
playing field to domestic industry. Since there were their rationale. A tax expenditure statement enables
numerous rates and exemptions, the closest a more informed public debate on the
approximation to the average effective rates for import efficacy of exemptions and discourages entrenched
duty (Basic+AD+SAD) for different sectors is given groups from demanding incentives in
by the relevant collection rates. The collection rate perpetuity.
for all commodity groups fell from 15 per cent in
2002-03 to 10 per cent in 2005-06 and has remained 3.21 In Budget 2007-08, the Minimum Alternate
at that level in 2006-07 (Prov.). Collection rate Tax (MAT) base was widened to include the profits
declined sharply for POL products, from 30 per of STPI units and export-oriented units, which enjoy
Table 3.4 Service tax–A growing revenue source
Tax rate Revenue Growth

Year Number of Number of (per (Rs. (per
services assessees cent) crore) cent)
2000-01 26 122326 5 2613 22.8
2001-02 41 187577 5 3302 26.4
2002-03 52 232048 5 4122 24.8
2003-04 60 403856 5 7891 91.4
2004-05 75 740267 10 14200 80.0
2005-06 84 806585 10 23055 62.4
2006-07 P 99 918746 12 37484 62.6
2007-08(BE) 100 na 12 50200 33.9
Source: Receipts Budget, Union Budget.
P- Provisional
Table 3.5 Collection rates for selected import groups

(per cent)
S No. Commodity 1995-96 2002-03 2003-04 2004-05 2005-06 2006-07
Groups (Prov.)
1 Food products 23 30 19 22 32 23
2 POL 30 11 11 10 6 5
3 Chemicals 44 28 24 22 20 22
4 Man-made fibres 36 31 46 39 34 28
5 Paper & newsprint 8 7 7 7 9 10
6 Natural fibres 12 10 13 11 13 12
7 Metals 52 36 32 26 25 24
8 Capital goods 33 23 19 16 13 14
9 Others 13 9 8 6 5 6
10 Non-POL 28 17 14 12 12 12
Total 29 15 14 11 10 10
Source: Department of Revenue, Ministry of Finance.
Notes : 1. Collection rate is defined as the ratio of realized import revenue (including basic duty, additional customs duty/
countervailing duty [CVD], and special additional duty) to the value of imports of a commodity.
2. S.No.1 includes cereals, pulses, tea, milk and cream, fruits, vegetables, animal fats and sugar.
3. S.No. 3 includes chemical elements, compounds, pharmaceuticals, dyeing and colouring materials, plastic and
rubber.
4. S.No.5 includes pulp and waste paper, newsprint, paperboards and manufactures and printed books.
5. S.No.6 includes raw wool and silk.
6. S.No.7 includes iron and steel and non-ferrous metals.
7. S.No.8 includes non-electronic machinery and project imports, electrical machinery.
a tax holiday. Similarly, some incentives to the expenditure, plan expenditure and capital
housing sector and to scientific research and expenditure are the closest approximation to such
development were allowed to sunset. expenditure. As a proportion of GDP, plan
Simultaneously, in the realm of indirect taxes, expenditure, which was 4.5 per cent in 2002-03
7 exemptions in customs duties and 7 exemptions declined to 3.9 per cent in 2005-06 but recovered
in Central excise duties were withdrawn. to 4.1 per cent in 2006-07. In 2007-08 (BE), plan
expenditure is budgeted to increase by 18.7 per
Expenditure trends cent over 2006-07 (BE) and reach 4.4 per cent of
3.22 FRBMA stipulates that public expenditure GDP. Non-plan expenditure, after recording a year-
must be reoriented for the creation of productive on-year growth of 15.6 per cent in each of the two
assets. Given the existing classification of years of 2002-03 and 2003-04, witnessed a
Figure 3.4 Collection rates for selected import

70
60 Total
50
Food
Per cent
40 Products
30
POL
20
10 Capital
Goods
0
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07(Prov)
Years
moderation in growth in 2004-05 and in fact had without a corresponding increase in its assets.
declined in 2005-06. In 2006-07, the non-plan The existence of revenue deficit indicates that a
expenditure recorded an increase of 13.1 per cent part of the borrowings by the Government is not
and such expenditure is proposed to increase by being used for financing public investment. When
15 per cent in 2007-08 over the 2006-07 (Actuals). the focus is only on reducing the fiscal deficit, the
As a proportion of GDP, non-plan expenditure
brunt of fiscal correction is often borne by
followed a pattern similar to that of plan
compression in capital expenditure. The change
expenditure. It fell from 12.7 per cent of GDP in
in revenue deficit on the path of fiscal adjustment
2003-04 to 10 per cent in 2006-07 and is budgeted
at 10.1 per cent of GDP in 2007-08 (Table 3.2). indicates the quality of fiscal correction, which is
as important as the level of fiscal correction itself.
3.23 Capital expenditure comprises expenditure FRBMA highlights the significance of keeping the
towards asset formation and loans and advances.
revenue expenditure under control and envisages
As a proportion to GDP, capital expenditure
elimination of the revenue deficit by the end of
declined from 3 per cent in 2002-03 to 1.7 per
2008-09.
cent in 2006-07. It is budgeted to increase to 2.6
per cent in 2007-08. However, within capital 3.25 As a proportion to GDP, revenue
expenditure, the ratio of capital expenditure towards expenditure after increasing to 13.8 per cent in
direct asset formation and intermediation through 2002-03, declined to 12.4 per cent in 2006-07. It
loans and advances which was 34:66 in 1997-98 is budgeted to decline further to 11.9 per cent in
has improved to 81:19 and 85:15 in 2005-06 and 2007-08. In terms of economic classification,
2006-07, respectively. This was partly due to a revenue expenditure is composed of pay and
decline in intermediation to States with the creation allowances; interest payments; grants to the
of National Small Savings Funds (NSSF) and States and Union Territories; subsidies and others
consequent upon the recommendations of the (Figures 3.5 and 3.6).
Twelfth Finance Commission (TFC).
Interest payments
3.24 Revenue expenditure is expenditure
incurred for purposes other than creation of assets 3.26 Persistent and high deficits seriously
of the Central Government. Revenue deficit is the impair the counter cyclical ability of fiscal policy,
difference between revenue expenditure and revenue lead to unsustainable debt build up and adversely
receipts. Broadly, the revenue deficit indicates the affect the composition of expenditure through larger
excess of current expenditures over revenues, or interest outgo. As a proportion of GDP, interest
dissavings by the Government. The fiscal deficit payments after remaining at a high level of 4.8 per
captures the excess of overall expenditure over cent in 2002-03, started declining to reach 3.6 per
revenue comprising current receipts and non debt cent in 2006-07. It is budgeted to decline further
capital receipts. Revenue deficit implies an to 3.4 per cent of GDP in 2007-08. As a proportion
increase in the liabilities of the Central Government of revenue receipts, the corresponding decline was
Figure 3.5 Trends in Centre's revenue expenditure

200
Interest Payments
150
Rs. ‘000 Crore
Major Subsidies
100 Defence
Expenditure
50 Grants to States
and UTs
0 Others
2003-04
2004-05
2005-06
2006-07
2007-08(BE)
Years
Figure 3.6 Composition of revenue expenditure

100
28.4 28.4 29.9 32.0 33.0 Others

80 34.3
12.7 13.4 14.0

60 16.7 Grants to States
Per cent
17.5 18.3 and UTs

12.0 12.0 11.7
10.1 10.3
40 9.2
Major Subsidies
34.8 34.3 33.0 30.2 29.2 28.5
20
Interest Payments
12.0 11.9 11.4 11.0 10.0 9.7
0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08(BE) Defence
Expenditure
Years
from a high of 51 per cent in 2002-03 to 34.6 per Subsidies

cent in 2006-07, and further to 32.7 per cent in 3.27 The impact of subsidies on specific goods
2007-08 (BE). These declining trends, as proportion and services is the opposite of that of excise and
of both GDP and revenue receipts, were partly on service taxes. By reducing relative prices,
account of the softening of interest rates which subsidies can increase the use of products like
resulted in progressive reduction in the average food, fertilizer and petroleum products. Market
cost of borrowing and slower growth of debt solutions often result in under consumption of
(Table 3.6). The average cost of internal borrowing, various goods and services by vulnureable
including those under Market Stabilisation Scheme sections, either because of higher prices or
(MSS), is budgeted at 7.9 per cent in 2007-08 because of competing claims on their income of
(Figure 3.7). other goods. By reducing the prices, across the
board or for the specific groups, subsidies increase
Table 3.6 Interest on outstanding internal affordability, improve access, and correct under
liabilities of Central Government consumption of these goods with positive
externalities. With direct provision by the Centre,
Outstanding Interest Average major subsidies, mainly on food, fertilizer and
internal on internal cost of petroleum, grew from Rs. 40,716 crore in 2002-03
liabilities liabilitiesa borrowings
to Rs. 52,935 crore in 2006-07, and are budgeted
(per cent
per annum) at Rs. 51,247 crore in 2007-08. As a proportion of
GDP, however, subsidies fell from 1.7 per cent in
(Rs. crore)
2002-03 to 1.3 per cent in 2006-07 and 1.1 per
2000-01 1047976 94900 10.2
2001-02 1196245 103175 9.8 cent in 2007-08 (BE) (Figure 3.8). Subsidies
2002-03 1323704 113238 9.5 constituted 12.6 per cent of the current receipts in
2003-04 1457583 116869 8.8 2007-08 (BE). Though, as a proportion to GDP,
2004-05 1603785 124126 8.5
major subsidies have declined in the last five years,
2005-06 1752404 129474 8.1
2006-07(RE) 1963840 142324 8.1 as a percentage of total expenditure, these are
2007-08(BE) 2099458 154678 7.9 still at a significantly high level of about 8 per
Source: Budget documents. cent. As included in the first batch of
a Excludes Rs. 313.61 crore and Rs. 4,079.62 crore supplementary demand for grants, the expenditure
towards premium on account of domestic debt on subsidies is expected to further increase by
buyback scheme and prepayment of external Rs. 6,550 crore in 2007-08 over the BE levels.
debt for 2002-03 and 2003-04, respectively.
These budgetary subsidies, however, do not include
Note : 1. Average cost of borrowing is the
percentage of interest payment in year ‘ t’
compensation provided through the issue of special
to outstanding liabilities in year ‘t-1’. securities to oil marketing companies, Food
2. Outstanding internal liabilities exclude NSSF Corporation of India and fertilizer units. However,
loans to States, with no interest liability on besides the issues relating to fiscal cost of
the part of the Centre. subsidies and their distortionary impact on price
Figure 3.7 Interest on internal liabilities and average interest cost of borrowing
160 11
Average Interest Cost

140 Interest on
Per cent per Annum

Internal
120
Rs. ‘000 Crore
10 Liabilities
100 (Rs.)
80 9
Average
60 Cost of
40 8 Borrowing
(%)
20
0 7
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07(RE)
2007-08(BE)
Years
mechanism, there are important governance issues The Budget for 2007-08 has raised the Central
of leakages, inefficient delivery mechanism and Plan outlay by 31 per cent over 2006-07 (RE) to
inclusion/exclusion error associated with subsidies. Rs. 3,19,992 crore. The outlay is composed of
The NCMP, therefore, mandates the Government Budgetary Support of Rs. 1,54,939 crore and IEBR
to target all subsidies sharply at the poor and of CPSEs of Rs. 1,65,053 crore. The broad sector-
needy. wise allocations for important sectors are: Energy
(24.7 per cent); social services (25.1 per cent);
Supplementary demands for grants transport (22.4 per cent); communication (8.1 per
3.28 Till December 2007 there were two cent); rural development (6.4 per cent); industry
supplementary demands for grants in 2007-08 for and minerals (6.4 per cent); agriculture and allied
which Parliament gave its approval. The first batch activities (2.7 per cent); and irrigation and flood
of demands included 39 grants involving a net control (0.2 per cent). Central assistance for
cash outgo aggregating to Rs. 10,428 crore. States' and UTs' Plans in 2007-08 (BE) is placed
Together with the demands for additional at Rs. 50,161 crore, a rise of 8.5 per cent from
expenditure of Rs. 9,984 crore of a technical nature 2006-07 (RE).
without cash outgo, the gross additional
Government debt
expenditure authorized was Rs. 20,412 crore. The
major items involving cash outgo included subsidy 3.30 As a proportion of GDP, outstanding
on imported decontrolled fertilizers, indigenous liabilities (including external debt at historical
decontrolled fertilizers, imported urea and exchange rate) of the Central Government was
nitrogenous fertilizers (Rs. 6,550 crore). The second 63.5 per cent in 2002-03. With the nominal rate of
batch of supplementary demands for grants for 42 growth of GDP accelerating to 13.7 per cent, 15.8
items authorized gross additional expenditure of per cent and 13.2 per cent in 2005-06, 2006-07
Rs. 33,291 crore. Net cash outgo involved was and 2007-08 (Advanced Estimates), respectively,
Rs. 11,870 crore and the balance amount of Rs. coupled with a relatively slower growth in
21,421 crore was matched by savings or enhanced outstanding liabilities, these declined to 63.1 per
receipts. The major items of expenditure with cash cent of GDP in 2005-06, 61.2 per cent of GDP in
outgo included additional expenditure on account 2006-07 (RE) and 58.5 per cent of GDP in 2007-
of interest liabilities under “Market Stabilisation 08 (BE) (Table 3.7 and Figure 3.9).
Scheme” (Rs. 4,500 crore). 3.31 The Central Government liabilities are
composed primarily of external and internal
Central Plan outlay
liabilities, which include market loans (as also
3.29 The 2006-07 (RE) had envisaged a Central Treasury Bills) and relief/savings bonds and others.
Plan outlay of Rs. 2,44,229 crore comprising gross The share of debt in total internal liabilities rose
budgetary support of Rs. 1,26,510 crore (51.8 per from 54.4 per cent in 1990-91 to 66 per cent in
cent) and Internal and Extra Budgetary Resources 2004-05 and is budgeted at 64 per cent in 2007-
(IEBR) of public enterprises of Rs. 1,17,719 crore. 08. Market borrowings as a proportion of
Table 3.7 Outstanding liabilities of the Central Government

(end-March)
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
(RE) (BE)
(Rs. crore)
1. Internal liabilities 1499589 1690554 1933544 2165902 2434329 2633197
a) Internal debta 1020688 1141706 1275971 1389758 1554238 1683967
i) Market borrowings 619105 707965 758995 862370 973323 1091903
ii) Others 401583 433741 516976 527388 580915 592064
b) Other Internal liabilities 478901 548848 657573 776144 880091 949230
2. External debt (outstanding)b 59612 46124 60878 94243 102135 111245
3. Total outstanding liabilities (1+2) 1559201 1736678 1994422 2260145 2536464 2744442
4. Amount due from Pakistan on 300 300 300 300 300 300
account of share of pre-partition debt
5. Net liabilities (3-4) 1558901 1736378 1994122 2259845 2536164 2744142
1. Internal liabilities 61.1 61.4 61.4 60.5 58.7 56.1
a) Internal debta 41.6 41.4 40.5 38.8 37.5 35.9
i) Market borrowings 25.2 25.7 24.1 24.1 23.5 23.3
ii) Others 16.4 15.7 16.4 14.7 14.0 12.6
b) Other Internal liabilities 19.5 19.9 20.9 21.7 21.2 20.2
2. External debt (outstanding)b 2.4 1.7 1.9 2.6 2.5 2.4
3. Total outstanding liabilities 63.5 63.0 63.3 63.1 61.2 58.5
Memorandum items
(a) External debt (Rs. crore)c 196043 184177 191182 194078 201209 212260
(as per cent of GDP) 8.0 6.7 6.1 5.4 4.9 4.5
(b) Total outstanding liabilities
(adjusted) (Rs. crore) 1695632 1874731 2124726 2359980 2635538 2845457
(as per cent of GDP) 69.1 67.1 67.5 65.9 63.6 60.6
(c) Internal liabilities (non-RBI)d 1337752 1529571 1771117 1969106 2225778 2435399
(as per cent of GDP) 54.5 55.5 56.2 55.0 53.7 51.9
(d) Outstanding liabilities
(non-RBI)c (Rs. crore) 1533795 1713748 1962299 2163184 2426987 2647659
Outstanding liabilities
(non-RBI)
(as per cent of GDP) 62.5 62.2 62.3 60.4 58.5 56.4
(e) Contingent liabilities of
Central Government
(Rs. crore) 90617 87780 107957 110626.0 n.a. n.a.
Contingent liabilities of
Central Government
(as per cent of GDP) 3.7 3.2 3.4 3.1 n.a. n.a.
(f) Total assets (Rs. crore) 840768 903558 1083422 1194446 1361405 1497404
Total assets
(as per cent of GDP) 34.3 32.8 34.4 33.4 32.8 31.9
Source: 1. Budget documents. 2. Controller of Aid Accounts and Audit. 3. Reserve Bank of India.
n.a. : not available
a Internal debt includes net borrowing of Rs 64,211crore for 2004-05, Rs 29,062 crore for 2005-06, Rs.70,000 for 2006-
07(RE) and Rs 80,000 crore for 2007-08(BE) under Market Stabilisation Scheme.
b External debt figures represent borrowings by Central Government from external sources and are based upon
historical rates of exchange.
c Converted at year-end exchange rates. For 1990-91,the rates prevailing at the end of March 1991; For 1999-2000,the
rates prevailing at the end of March 2000 and so on. Figures for 2007-08 are based on revised estimates.
d This includes marketable dated securties held by the RBI.
Note: The ratios to GDP at current market prices are based on CSO’s new 1999-2000 series.
Figure 3.8 Subsidies as percentage of GDP
60 2.0
Percentage of GDP
50
Rs. ‘000 Crore
1.6
Subsidies
40
1.2
30
0.8
20 Subsidies
0.4 as % of
10 GDP
0 0
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07(RE)
2007-08(BE)
Years
Government debt has hovered around 38-39 per as defined above were 54.6 per cent of
cent. The RBI as the Government’s debt manager Government’s outstanding liabilities, indicating that
fixes biannual indicative issuance calendar for the cumulatively so far nearly 46 per cent of the
Government borrowings, in consultation with the outstanding liabilities went to meet the current
Ministry of Finance. The Budget for 2007-08 placed expenditure of Government.
the net market borrowings (dated securities and
364-day Treasury Bills excluding borrowings under Economic and functional classification
MSS) at Rs. 1,09,579 crore. 3.33 The economic and functional classification
of the Central Government Budget for 2007-08,
3.32 Borrowings should generally be resorted
to only for the purpose of asset creation. However, which reclassifies budgetary transactions into the
with the existence of a revenue deficit all through significant economic categories on the lines of
these years, a significant proportion of liabilities national income accounts, indicates total
were contracted to meet the current expenditure expenditure as 18.1 per cent higher than 2006-07
commitments. Government accounting systems (RE). Of total expenditure, consumption
do not provide a comprehensive accounting of its expenditure was 19.9 per cent, current transfers
assets, particularly land, building, etc., owned by 57.8 per cent, gross capital formation 21.6 per
it. But Government accounts do capture the assets cent and others 0.7 per cent (Table 3.8). In terms
created in the form of capital expenditure and of functional classification, general services
outstanding loans receivable by the Central accounted for 21.6 per cent of total expenditure,
Government. These two together form the assets while social and economic services accounted for
of Government created out of its annual fiscal 14.2 per cent and 29.9 per cent, respectively, with
operations. Though the assets, for example, the balance 34.3 per cent (being in the nature of
machinery and buildings, are of different vintages, statutory grants-in-aid to States, non-plan grants,
their sum total nonetheless provides an food and other consumer subsidies, etc.)
assessment of Government’s assets. Total assets categorized as unallocable (residual).
Figure 3.9 Debt GDP ratios

70
Percentage of GDP
60 Total
outstanding
50 liabilities
40
Internal
30 liabilities
20
Market
10 Borrowings
0
External
debt
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07(RE)
2007-08(BE)
(outstand-
ing)
Years
Table 3.8 Total expenditure and capital formation of the Central Government
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

(RE) (BE)
(Rs. crore)
I. Total expenditure 398879 426132 463831 501083 578606 683348
II. Gross capital formation out of
budgetary resources of Central
Government 76782 82561 92855 84757 100333 147921
(i) Gross capital formation
by the Central Government 21697 23997 27396 34450 46471 49968
(ii) Financial assistance for capital
formation in the rest of the economy 55085 58564 65459 50307 53862 97953
III. Gross saving of the Central
Government -81734 -71968 -60378 -61431 -39260 -32530
IV. Gap (II-III) 158516 154529 153233 146188 139593 180451
Financed by
a. Draft on other sectors of
domestic economy 168582 165858 135918 109799 129232 169205
(i) Domestic capital receipts 166699 169800 208259 130687 118306 169205
(ii)Budgetary deficit/draw down of 1883 -3942 -72341 -20888 10926 0
cash balance
b. Draft on foreign savings -10066 -11329 17315 36389 10361 11246
I. Total expenditure 16.3 15.5 14.7 14.0 14.0 14.6
II. Gross capital formation out of
budgetary resources of Central
Government 3.1 3.0 2.9 2.4 2.4 3.2
(i) Gross capital formation
by the Central Government 0.9 0.9 0.9 1.0 1.1 1.1
(ii) Financial assistance for capital
formation in the rest of the economy 2.2 2.1 2.1 1.4 1.3 2.1
III. Gross saving of the Central
Government -3.3 -2.6 -1.9 -1.7 -0.9 -0.7
IV. Gap (II-III) 6.5 5.6 4.9 4.1 3.4 3.8
Financed by
a. Draft on other sectors of
domestic economy 6.9 6.0 4.3 3.1 3.1 3.6
(i) Domestic capital receipts 6.8 6.2 6.6 3.7 2.9 3.6
(ii) Budgetary deficit/draw down of 0.1 -0.1 -2.3 -0.6 0.3 0.0
cash balance
b. Draft on foreign savings -0.4 -0.4 0.5 1.0 0.2 0.2
(Increase over previous year)
II. Gross capital formation out
of budgetary resources of
Central Government -0.1 7.5 12.5 -8.7 18.4 47.4
Memorandum items
(Rs. crore)
1 Consumption expenditure 85389 87170 105692 116305 123583 135907
2 Current transfers 228501 248436 259529 297267 348552 394681
1 Consumption expenditure 3.5 3.2 3.4 3.2 3.0 2.9
2 Current transfers 9.3 9.0 8.2 8.3 8.4 8.4
Source: Ministry of Finance, An Economic and Functional Classification of the Central Government Budget—various issues.
Notes: (i) Gross capital formation in this table includes loans given for capital formation on a gross basis. Consequently
domestic capital receipts include loan repayments to the Central Government.
(ii) Consumption expenditure is the expenditure on wages & salaries and commodities & services for current use.
(iii) Interest payments, subsidies, pensions etc. are treated as current transfers.
(iv) Gross capital formation & total expenditure are exclusive of loans to States/UTs against States/UTs share in the
small savings collection.
(v) The figures of total expenditure of the Central Government as per economic and functional classification do not
tally with figures given in the Budget documents. In the economic and functional classification, interest transfered
to DCUs, loans written off etc, are excluded from the current account. In the capital account, expenditure financed
out of railways, posts & telecommunications’ own funds, etc, are included.
(vi) The ratios to GDP at current market prices are based on CSO’s new 1999-2000 series.
3.34 The share of wages and salaries within regard, like avoiding rush of expenditure through
consumption expenditure at 38.7 per cent in 2007- releases in a time-sliced manner and simplification
08 (BE) was marginally less than 39.9 per cent in of procedures. Performance audit by the
2006-07 (RE). The reclassification shows that Comptroller & Auditor General of India (C&AG) of
share of current grants in total expenditure went selected programmes continued to throw up
up from 21.7 per cent in 2006-07 (RE) to 22.7 per important lessons for expenditure management.
cent in 2007-08 (BE), reflecting the impact of Further, the C&AG has recently framed and
implementation of the TFC award. Dissavings of notified Regulations of Audit and Accounts for
the Central Government, which grew steadily from the Government departments and other bodies
Rs. 10,502 crore in 1990-91 to Rs. 81,734 crore and authorities under their control. Notification of
in 2002-03, was reduced to Rs. 71,968 crore in the regulations has brought transparency in
2003-04 and further to Rs. 39,260 crore in 2006- Government audit and accounting process of
07 (RE). It is budgeted to decline further to Rs. C&AG (Box 3.2).
32,530 crore in 2007-08 (BE). As a proportion to
GDP, total expenditure is budgeted at 14.6 per Fiscal outcome so far for Budget 2007-
cent, a decline from 16.3 per cent in 2002-03. All 08
the three components, viz., consumption 3.36 As per the data on Central Government
expenditure, current transfers and gross capital finances published by the Controller General of
formation, shared the decline. As a proportion of Accounts for the period April-December 2007, gross
GDP, dissavings were placed at 0.9 per cent in tax revenue was placed at Rs. 3,89,345 crore and
2006-07 (RE) and 0.7 per cent in 2007-08 (BE). total expenditure at Rs. 4,74,253 crore. As against
an assumed growth of 24 per cent in gross tax
Expenditure management
receipt in 2007-08 (BE) over 2006-07 (BE), the
3.35 Public expenditure management is an realized growth during April-December has been 27
integral part of the fiscal reforms and Government per cent over the same period last year. Up to
has been taking a series of initiatives in this December 2007, 71 per cent of the budgeted amount
Box 3.2 Framing of Regulations of Audit and Accounts by C&AG
As contained in Article 149 of the Constitution, the Comptroller and Auditor General of India performs such
duties and exercises such powers in relation to accounts of the Union and of the States and of any other
authority or body as is prescribed by or under any law made by Parliament. Accordingly, the C&AG’s (Duties,
Powers and Conditions of Services) Act, 1971 was passed by the Parliament in 1971. Section 23 of the Act
empowers the C&AG to make regulations for carrying into effect the provisions of the Act insofar as they relate
to the scope and extent of audit, including laying down for the guidance of the Government departments the
general principles of Government accounting and broad principles in regard to the audit of receipts and
expenditure. In pursuance of these provisions, the C&AG of India has framed the Regulations on Audit and
Accounts. The Regulations have been notified in the Official Gazette of Government of India in November
2007. The Regulations will be useful in informing the Government Departments and other bodies and
authorities under the control of Government regarding principles of government audit and accounting. The
Regulations will also act as guide for audit personnel. Notification in Official Gazette of Government of India
makes it a public document available to even general public. This is a step forward from the earlier system
of departmental instructions through manuals and other means which were meant for in-house circulation
only. Framing of Regulations for the knowledge of all concerned is thus a welcome step taken by the C&AG
in bringing transparency in the Government audit and accounting process.
Audit of fraud and corruption cases

In view of the increasing risk perception for fraud and corruption cases and higher incidence of such cases
coming to notice during audit, the C&AG has taken proactive action and has framed guidelines for audit in
relation to fraud and corruption cases. A detailed standing order has been issued by the C&AG in this regard
in September 2006 to serve as guidance to audit personnel. The order gives red flag areas which may
indicate the possibility or higher risk of a fraud or corruption. The order is benchmarked to international best
practices and its issue is timely and appropriate. The order can also be of use to the executive for identifying
red flag areas with a view to undertake appropriate examination and remedial action.
was collected. The overall growth in gross tax during these months, while both revenue and
revenue so far vis-à-vis the growth assumed in BE total expenditure are more evenly spread. Higher
for 2007-08 suggests that the current financial year realization from taxes in September and
may end up with collection higher than initially December get associated with a reduction in
estimated. Non-tax revenue for the first nine months revenue and fiscal deficit in these months.
of this financial year recorded a significantly high
Financing of the Eleventh Five Year Plan
growth of 22.4 per cent over the corresponding
period of the previous year which was 1.5 per 3.38 The National Development Council at its
cent. The collection up to December 2007 is 54th meeting on December 19, 2007, adopted the
72.3 per cent of 2007-08 (BE) (Table 3.9). Eleventh Five Year Plan starting from 2007-08.
The Eleventh Five Year Plan builds on the strength
3.37 Month-to-month movement of major of average growth of 7.8 per cent of GDP achieved
fiscal parameters (Table 3.10) reveal that both in the Tenth Five Year Plan period, the highest in
revenue and expenditure have generally been any plan period so far, and targets an average
well time-spaced. Revenue receipts generally growth of 9 per cent during the Plan. The Planning
become buoyant in September and December Commission projects an increase in public sector
with quarterly advance tax payments falling due resources for the Plan from 9.46 per cent of GDP
Table 3.9 Central Government finances
2007-08 April-December Column 4 % Change

Budget as % of (column 4/3)
estimates 2006-07 2007-08 column 2
1 2 3 4 5 6 7
(Rs. crore)
1. Revenue receipts (net to Centre) 486422 280915 355646 73.1 26.6
Gross tax revenue 548122 306527 389345 71.0 27.0
Tax (net to Centre) 403872 232171 295994 73.3 27.5
Non-tax 82550 48744 59652 72.3 22.4
2. Capital receipts 194099 102806 118607 61.1 15.4
of which:
Recovery of loans 1500 7952 3304 220.3 -58.5
Other receipts 41651 a 0 37725 b 90.6 -
Borrowings and other liabilities 150948 94854 77578 51.4 -18.2
3. Total receipts (1+2) 680521 383721 474253 69.7 23.6
4 Non-plan expenditure (a)+(b) 475421 272203 337090 70.9 23.8
(a) Revenue account 383546 253791 280050 73.0 10.3
of which:
Interest payments 158995 92634 111764 70.3 20.7
Major subsidies 50987 40225 49259 96.6 22.5
Pensions 23488 15050 16551 70.5 10.0
(b) Capital account 91875a 18412 57040 62.1 209.8
5. Plan expenditure (i)+(ii) 205100 111518 137163 66.9 23.0
(i) Revenue account 174354 93901 114806 65.8 22.3
(ii) Capital account 30746 17617 22357 72.7 26.9
6. Total expenditure (4)+(5)=(a)+(b) 680521 383721 474253 69.7 23.6
(a) Revenue expenditure 557900 347692 394856 70.8 13.6
(b) Capital expenditure 122621 36029 79397 64.7 120.4
7. Revenue deficit 71478 66777 39210 54.9 -41.3
8. Fiscal deficit 150948 94854 77578 51.4 -18.2
9. Primary deficit -8047 2220 -34186 424.8 -1639.9
Source: Controller General of Accounts.

a Includes an amount of Rs. 40,000 crore on account of transaction relating to transfer RBI’s stake in SBI to the
Government.
b Includes an amount of Rs. 34,308.6 crore on account of transfer of profit on sale of RBI’s stake in SBI.
Table 3.10 Trends in cumulative Central Government finances for 2007-08
(Rs. crore)
2007-08 April April- April- April- April- April- April- April- April-
(BE) May June July August Sept. Oct. Nov. Dec.
1 2 3 4 5 6 7 8 9 10
1. Revenue receipts 486422 8106 25899 64428 95291 164083 197956 246546 274633 355646
Per cent to BE 1.7 5.3 13.2 19.6 33.7 40.7 50.7 56.5 73.1
2. Capital receipts 194099 28126 64851 115472 132772 107284 119936 122356 136742 118607
3. Total receipts 680521 36232 90750 179900 228063 271367 317892 368902 411375 474253
Per cent to BE 5.3 13.3 26.4 33.5 39.9 46.7 54.2 60.5 69.7
4. Non-Plan expenditure 475421 27226 67615 131999 168244 199042 231134 269549 298756 337090
Per cent to BE 5.7 14.2 27.8 35.4 41.9 48.6 56.7 62.8 70.9
5. Plan expenditure 205100 9006 23135 47901 59819 72325 86758 99353 112619 137163
Per cent to BE 4.4 11.3 23.4 29.2 35.3 42.3 48.4 54.9 66.9
6. Total expenditure 680521 36232 90750 179900 228063 271367 317892 368902 411375 474253
Per cent to BE 5.3 13.3 26.4 33.5 39.9 46.7 54.2 60.5 69.7
7. Revenue expenditure 557900 34081 85234 133074 177691 217598 259080 304108 344607 394856
Per cent to BE 6.1 15.3 23.9 31.8 39.0 46.4 54.5 61.8 70.8
8. Revenue deficit 71478 25975 59335 68646 82400 53515 61124 57562 69974 39210
Per cent to BE 36.3 83.0 96.0 115.3 74.9 85.5 80.5 97.9 54.9
9. Fiscal deficit 150948 27814 62135 112404 129408 103338 81200 82256 96274 77578
Per cent to BE 18.4 41.2 74.5 85.7 68.5 53.8 54.5 63.8 51.4
Source: Controller General of Accounts, Department of Expenditure, Ministry of Finance
in the Tenth Five Year Plan to 13.54 per cent in 3,24,851 crore of Central assistance. Union
the Eleventh Five Year Plan. The Plan highlights Territories account for 3.8 per cent of the combined
that this depends critically on achievement of aggregate Plan resources of States and UTs. As
buoyancy in tax revenue, effective control over per the Eleventh Five Year Plan document, the
consumption expenditure and subsidies, and an most notable feature of the Eleventh Five Year
improvement in the resource mobilizing capacity Plan projections is relatively modest dependence
of PSUs both at the Central level and at the State on borrowings amounting to 38.9 per cent of the
level. It notes that developments like total plan resources compared with 73.9 per cent
implementation of FRBM Act, 2003, the Twelfth in the Tenth Five Year Plan realization.
Finance Commission (TFC) award for 2005-10,
3.40 The Eleventh Five Year Plan focuses on
emergence of service tax as a very promising
poverty reduction, ensuring access to basic
source of revenue, Sixth Central Pay Commission
physical infrastructure, and better access to health
award (forthcoming) and the proposed unified
and education services, while giving importance to
Goods and Service Tax (GST) (from April 1, 2010)
bridging regional, social and gender disparities.
will have implications on financing of the Eleventh
The allocation of the outlays of the Eleventh Five
Five Year Plan.
Year Plan to various sectors has been in terms of
3.39 The Centre’s Gross Budgetary Support the sectoral priorities (Table 3.11). It indicates a
(GBS) for the Eleventh Five Year Plan is estimated substantial increase, over the Tenth Five Year Plan,
at Rs. 14,21,711 crore at 2006-07 prices, out of in the combined Centre and States allocations, of
which Central assistance to States and UTs plan public sector resources for social services, energy,
works out to Rs. 3,24,851 crore. IEBR of CPSUs
industry and agriculture.
is estimated at Rs.10,59,711 crore. Total resources
available for the Central Plan are projected at Rs. 3.41 The Eleventh Five Year Plan document
21,56,571 crore. Plan resources of States & UTs points out the following major challenges in
have been projected to be Rs.14,88,147 crore at financing the plan. (i) The total resources for the
2006-07 prices. This comprises Rs.11,63,296 crore Central and State Plans taken together have to
of own resources (including borrowings) and Rs. increase from an average of 9.46 per cent of GDP
Table 3.11 Overall sectoral allocation of plan resources (Centre and States)
(Rs. crore)
Eleventh Five Year Plan Tenth Increase Share of
Plan over 10th States in
Plan (%) 11th Plan
Centre IEBR States Total (%)
Agriculture 50924 85458 136382 60702 124.7 62.7
Rural development 190330 110739 301069 137710 118.6 36.8
Area programmes 26329 26329 16423 60.3 100.0
Irrigation 6747 203579 210326 112415 87.1 96.8
Energy 36912 591826 225385 854123 363635 134.9 26.4
Industry 54382 67196 32021 153599 64655 137.6 20.8
Transport 120188 266118 186137 572443 263934 116.9 32.5
Communication 16133 79204 43 95380 82945 15.0 0.0
Science & technology 75421 25 12487 87933 28673 206.7 14.2
Other eco services 13920 891 47712 62523 30349 106.0 76.3
Social services 524414 54450 523463 1102327 436529 152.5 47.5
General services 7489 34794 42283 20489 106.4 82.3
Total 1096860 1059711 1488147 3644718 1618460 125.2 40.8
Source: Planning Commission.
in the Tenth Five Year Plan to an average of 13.54 together is therefore 4.74 percentage points of
per cent of GDP in the Eleventh Five Year Plan. GDP. The achievement of these BCR targets is a
It may be noted that while the total size of the key element in the financing of the Plan.
Plan is projected at 13.54 per cent of GDP, the 3.42 The Eleventh Five Year Plan also
total public investment in the economy is projected proposes to address many outstanding issues that
to be lower at 8.0 per cent. This difference reflects have emerged over the years with the changing
the fact that a great deal of Plan expenditure structure of Centre-State financial relations such
finances current expenditure on various items of as increasing role of Centrally Sponsored schemes,
public service delivery which are not counted as financial discipline following the adoption of Twelfth
investment. (ii) The increase of 4.08 per cent of Finance Commission Report and the distinction
GDP in total resources for the Plan has to be between Plan and non-Plan expenditure and
achieved while keeping borrowing within the FRBM revenue and capital expenditure. The traditional
requirement of reducing the fiscal deficit of the distinction along the above lines has created
Centre and the States to 3 per cent of GDP on situations such as poor provision for maintenance
each account. (iii) The combined BCR of the Centre expenditure, illogicality of treating certain
and the States has to increase by more than the expenditure for similar objectives as Plan and
projected increase in Plan resources. As against certain others as non-Plan. There are also issues
the Centre’s BCR of an average of (-) 0.84 per relating to resource transfer to agencies of
cent of GDP, realized in the Tenth Five Year Plan, Government not getting captured in the accounting
it is projected to average 2.31 per cent of GDP system and thus nullifying the larger objective of
over the Eleventh Five Year Plan, i.e., an transparency in public finance. Furthermore, the
improvement of 3.15 percentage points of GDP. issue of non-comparability of the size of the State
Similarly, the BCR of States is also expected to Plans across different States, arising out of different
improve substantially from (-) 0.18 per cent of practices being followed among States, has to be
GDP as realized in the Tenth Five Year Plan to dealt with. Some States cover public sector entities
1.41 per cent of GDP in the Eleventh Five Year (except Financial Intermediaries) within the scope
Plan. The projected improvement required in the of the State as an economic entity but many do
combined BCR of the Centre and the States taken not (Box 3.3).
PERFORMANCE OF THE DEPARTMENTAL in freight structure, despite various concessions
ENTERPRISES OF THE CENTRAL allowed to passenger traffic.
GOVERNMENT
3.44 Ordinary Working Expenses of the Indian
Railways Railways increased by 7.7 per cent to Rs. 37,433
3.43 Indian Railways achieved freight loading crore in 2006-07. The total working expenses
of 727.8 million tonnes in 2006-07, representing including appropriations to Depreciation Reserve
an increase of 61.2 million tonnes over 2005-06. Fund and Pension Fund increased by 8.3 per
As a consequence, the freight revenue also grew cent to Rs. 49,047 crore in 2006-07. Taking into
by 15 per cent to Rs. 41,716 crore in 2006-07. account the net variation of the miscellaneous
The gross traffic receipts grew by 15 per cent to receipts and miscellaneous expenditure, the net
Rs. 62,732 crore in 2006-07. The additional traffic revenues of the Railways improved to Rs 14,453
revenue has been realized with minor adjustments crore in 2006-07.
Box 3.3 Certain Issues relating to accounting system

Distinction between plan and non-plan
It is argued that the distinction between plan and non-plan expenditure is illogical and even dysfunctional.
The distinction has led to ever increasing tendency to start new schemes/projects to the utter neglect of
maintenance of existing capacity and service levels. The distinction also often leads to the misperception
that non-plan expenditure is inherently wasteful and should be avoided. This dichotomy has resulted in
fragmented view of resource allocation to various sectors. The problem is assuming greater significance
with higher priority to social sectors where salary constitutes an important element of the programme. The
embargo imposed on recruitment for non-plan posts have caused serious problems of service delivery in
health and education sectors. A need has been felt to draw protocols that will specify the agency for specific
function and provide arrangements for coordinated activity.
Distinction between revenue and capital expenditure
The distinction between revenue and capital expenditure has acquired significance, and needs a relook,
consequent to the emergent situation in the post-FRBM period. The FRBM Act stipulates that revenue deficit
should be eliminated by the end of 2008-09. More than three-fourths of plan expenditure is now revenue
expenditure. Strict adherence to the FRBM stipulation has a bearing on the ability of the Centre to formulate
plan schemes aimed at addressing these new national priorities. Defence expenditure is treated, in national
accounts, as consumption and there are instances when capital expenditure does not necessarily lead to
more investments in the economy.
Accounting reform
An increasing proportion of fund transfer to the States in the recent years take place under CSS. These funds
are routed to States and district level bodies directly from the Central Government. This practice is motivated
by the desire to avoid delays and to prevent diversion of CSS funds by the States to support their ways and
means position. Of late, the emerging concern is ensuring accountability on the usage of these funds.
The existing system of accounting for plan schemes, both for States and the Centre, does not adequately
support informed planning, budgeting, effective monitoring, and decision making. The current accounting
system does not capture transaction-oriented information. It also does not distinguish between transfer to
States, final expenditure, and advance payments against which accounts have to be rendered. The extant
accounting framework is not structured to generate State-wise and scheme-wise releases of funds by the
Central Government to States, and other recipients, and also the actual utilization for the intended performance.
There is a need to design and implement a scheme that would aim at reforming this process. The scheme
would naturally modify the existing code of accounts so as to fully capture the entire range of plan schemes
operated by the Government of India and the State Governments. The Code of Accounts needs to be
restructured to provide information relating to each implementing agency. Though there are stand-alone
efforts, yet there is no consolidated financial information system based on the accounting structure. A
comprehensive Decision Support System (DSS) and Management Information System (MIS) for effective
monitoring of plan schemes is the need of the hour. This will work through a core accounting solution on
a central data centre. A detailed scheme would be finalized during the Eleventh Five Year Plan.
3.45 Railways fully discharged the dividend few years, made several efforts which include efforts
liability for 2006-07 which amounted to Rs. 3,584 to increase revenue generation and cutting down
crore and have also paid Rs. 663 crore towards costs. The efforts to increase revenue generation
outstanding deferred dividend liability. After payment and cutting down costs include introduction of
of total dividend from the net revenues earned, new products and services, strengthening the
Railways in 2006-07 have generated a net surplus existing ones and harnessing the potential of its
of Rs.10,206 crore. A healthy growth in traffic vast network to earn more revenues. Moreover,
revenues and prudent economy measures adopted with the Indian economy growing at 8 to 9 per
in expenditure management during 2006-07 have cent annually, the vast network of 1,55,516 post
further consolidated the financial health of the offices has caught the attention of many
Railways which is reflected in the operating ratio organizations, such as telecom companies, banks,
improving to 78.7 per cent as against 83.7 per financial institutions and NGOs who are eager to
cent in the previous year. The net revenue as a expand their services through the postal network.
proportion of capital-at-charge and investment from The Department of Posts is expected to actualize
capital fund has also improved to 19 per cent in this commercial potential through its vast network
2006-07. and delivery capabilities.
3.46 The Plan Expenditure of Railways for 2006- Broadcasting
07 stood at Rs. 25,002 crore including internally
3.49 Prasar Bharti, a public service broadcaster,
generated resources of Rs. 12,233 crore (i.e. 49
gives due priority to the matters of national
per cent of the total outlay). This included market
importance as determined by the Government of
borrowings of Rs. 4,161 crore by the Indian Railway
the day. The total expenditure of Prasar Bharti in
Finance Corporation (IRFC) and borrowings of Rs.
2006-07 was Rs.1,921.39 crore as compared to
450 crore for Rail Vikas Nigam Limited (RVNL).
the commercial receipts of Rs. 1,136.78 crore
Besides, Plan outlay also includes Rs. 244 crore
(gross) and Rs. 975.67 crore (net). Prasar Bharti
under Wagon Investment Schemes (WIS) as
has taken a number of steps to modernize and
private participation. While certain important
increase its commercial revenue. Some of the
projects and strengthening of golden quadrilateral
important steps include launching a new
under National Rail Vikas Yojana are in progress,
entertainment programme under J&K special
Railways have incorporated the Dedicated Freight
package, running of Urdu channel for 24 hours,
Corridor Corporation of India Ltd., to meet the
purchase of right to telecast cricket matches and
large increase in volume of freight traffic over the
other sports events, automation and digitization of
years. Railways are also modernizing and
studios and transmitters, and modernization of
upgrading the rail services, especially keeping in
satellite broadcast equipment. However, a resource
view the prevailing boom in the economy.
gap continues to exist and Rs.1,346.37 crore has
Posts been allocated in 2007-08 (BE) to cover the
resource gap of Prasar Bharti.
3.47 The gross receipts in 2006-07 of the
Department of Posts were Rs. 5,322.4 crore. During
FINANCES OF STATE
the same year, gross and net working expenses
GOVERNMENTS
were Rs. 6,779.1 crore and Rs. 6,572.0 crore,
respectively. There was, therefore, a deficit of 3.50 The finances of State Governments
Rs. 1,249.5 crore. In 2007-08 (BE), the gross traditionally follow a pattern similar to that of the
receipts are budgeted to increase to Rs. 5,539.7 Centre. State’s own tax receipts, as a proportion of
crore, with gross and net working expenses GDP, increased from 5.6 per cent in 2002-03 to 6.2
estimated at Rs. 7,237.4 crore and Rs. 7,021.9 per cent in 2006-07 (RE) and are projected to further
crore, respectively. The deficit is projected to be improve to 6.3 per cent of GDP in 2007-08 (BE).
Rs. 1,482.2 crore. The tax receipts inclusive of tax transfers from the
3.48 The universal service obligations of the Centre during the same period increased from
Postal Department primarily consist of the social 7.9 per cent to 9 per cent and further to 9.2 per
obligation to deliver letters/parcels/moneyorders to cent respectively. The total revenue receipts
rural and remote areas. In a bid to reduce the increased to 12.9 per cent of GDP in 2007-08
deficit, the Department of Posts has, over the last (BE). The total expenditure, on the other hand,
declined from 18.7 per cent of GDP in 2003-04 to of schedule. Further during the current financial
16.3 per cent in 2007-08 (BE). As a result, in 2006- year, 2007-08, the States are estimated to have a
07 (RE) all States put together have achieved revenue surplus of 0.3 per cent and fiscal deficit of
revenue deficit of 0.1 per cent and fiscal deficit of 2.3 per cent, of GDP (Table 3.12 and Figure 3.10).
2.7 per cent of GDP. The States were, therefore, 3.51 Most recent indicators of State finances
close to achieving the FRBMA mandated target of show a distinctly improved picture. The causative
eliminating revenue deficit two years ahead of the factors of fiscal deterioration in the past will,
scheduled year of 2008-09. Similarly, with significant however, need to be monitored in the future as
reduction in total disbursements as a proportion to well to sustain this progress and keep the balance
GDP, the consolidated fiscal deficit of all the States at the desired level. The causative factors are:
put together is already lower than the FRBMA interest payment; pension liabilities; losses of State
mandated target of 3 per cent since 2005-06, ahead PSUs; lack of proper user charges; and a possible
Table 3.12 Receipts and disbursements of State Governmentsa

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
(RE) (BE)
1 2 3 4 5 6 7 8
(Rs. crore)
I Total receipts (A+B) 4,14,539 5,14,829 5,63,661 5,95,629 6,74,736 7,67,845
A Revenue receipts (1+2) 2,73,673 3,09,187 3,63,513 4,31,022 5,31,429 6,06,733
1 Tax receipts 1,93,474 2,21,115 2,60,577 3,06,332 3,72,817 4,30,222
of which
State’s own tax revenue 1,36,819 1,54,037 1,82,027 2,12,307 2,57,080 2,94,038
2 Non-tax receipts 80,199 88,072 1,02,936 1,24,690 1,58,612 1,76,511
of which:
Interest receipts 9,031 7,748 8,648 9,380 9,302 11,008
B. Capital receipts 1,40,866 2,05,642 2,00,148 1,64,607 1,43,307 1,61,112
of which:
Recovery of loans & advances 3,698 16,158 8,039 8,904 8,482 4,592
II. Total disbursements (a+b+c) 4,10,248 5,14,303 5,53,427 5,61,682 6,87,946 7,66,619
a) Revenue 3,30,852 3,72,594 4,02,670 4,38,034 5,36,995 5,94,760
b) Capital 68,806 1,19,899 1,34,235 1,09,224 1,36,010 1,55,666
c) Loans and advances 10,590 21,810 16,522 14,424 14,941 16,193
III. Revenue deficit 57,179 63,406 39,157 7,012 5,566 -11,973
IV. Gross fiscal deficit 99,727 1,20,631 1,07,774 90,084 1,13,913 1,08,323
I. Total receipts (A+B) 16.9 18.7 17.9 16.6 16.3 16.4
A. Revenue receipts (1+2) 11.1 11.2 11.5 12.0 12.8 12.9
1. Tax receipts 7.9 8.0 8.3 8.6 9.0 9.2
of which
State’s own tax revenue 5.6 5.6 5.8 5.9 6.2 6.3
2. Non-tax receipts 3.3 3.2 3.3 3.5 3.8 3.8
of which:
Interest receipts 0.4 0.3 0.3 0.3 0.2 0.2
B Capital receipts 5.7 7.5 6.4 4.6 3.5 3.4
of which:
Recovery of loans & advances 0.2 0.6 0.3 0.2 0.2 0.1
II. Total disbursements (a+b+c) 16.7 18.7 17.6 15.7 16.6 16.3
a) Revenue 13.5 13.5 12.8 12.2 13.0 12.7
b) Capital 2.8 4.4 4.3 3.1 3.3 3.3
c) Loans and advances 0.4 0.8 0.5 0.4 0.4 0.3
III. Revenue deficit 2.3 2.3 1.2 0.2 0.1 -0.3
IV. Gross fiscal deficit 4.1 4.4 3.4 2.5 2.7 2.3
Source: Reserve Bank of India.
a Data pertains to 28 State Governments.
Note: 1. The ratios to GDP at current market prices are based on CSO’s new 1999-2000 series.
2. Capital receipts include accounts on a net basis.
3. Capital disbursements are exclusive of public accounts.
4. Negative sign indicates surplus.
Figure 3.10 Revenue and fiscal deficit of states

5
Percentage of GDP
4 Gross Fiscal
Deficit
3
2
Revenue
1 Deficit
0
-1
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07(RE)
2007-08(BE)
Years
moderation in buoyancy in taxes. The successful It also poses a challenge to States to sustain this
introduction of VAT by 30 States/UTs and the TFC momentum; and provides an opportunity to leverage
incentive to enact State level FRBM legislations gains achieved to concentrate on social sectors
appear to have deepened State level fiscal reforms to make the growth process more inclusive.
and put them on the path towards fiscal
3.55 In 2006-07, the States have been able to
sustainability.
have larger corrections, which are expected to
State level reforms lead to lower fiscal deficit as compared to the
revised estimates. During the current year also,
3.52 The pace of fiscal adjustment and against the budgeted fiscal deficit of 2.3 per cent
corrections at State level has gained further of GDP, the States could do better.
momentum during 2007-08. So far 26 out of 28
States have enacted FRBMAs. Sikkim and West 3.56 In pursuance of the provisions of Article
Bengal are the two States yet to enact FRBMAs. 280 of the Constitution of India, the Thirteenth
Finance Commission has been constituted by the
3.53 Debt Consolidation and Relief Facility President of India under the Chairmanship of Dr.
(DCRF), formulated as per recommendations of Vijay L. Kelkar vide a notification dated November
Twelfth Finance Commission (TFC), has two 13, 2007. The Commission shall make
components – consolidation of Central loans (from recommendations covering a period of five years
the Ministry of Finance); and debt waiver. So far, commencing on April 1, 2010. In making its
Central loans (from the Ministry of Finance) of 24 recommendations, the Commission shall have
out of 28 States have been consolidated to the regard, among other considerations, to the impact
extent of Rs. 1,09,977 crore. Jharkhand and of the proposed implementation of goods and
Jammu and Kashmir are among the States that services tax with effect from April 1, 2010, including
have enacted FRBMAs, a prerequisite for availing its impact on the country’s foreign trade, the need
of benefits under DCRF, whose debts are to be to manage ecology, environment and climate
consolidated. Debt consolidation has provided change consistent with sustainable development,
interest relief to the States to the extent of and the need to improve the quality of public
Rs. 4,392 crore and Rs. 3,995 crore in 2005-06 expenditure to obtain better outputs and outcomes.
and 2006-07, respectively.
3.54 The second component of DCRF is debt Value Added Tax (VAT)
waiver. For 2005-06, consolidated debt of 14 States 3.57 Introduction of State level VAT is the most
amounting to Rs. 3,879 crore was waived, and for significant tax reform measure at State level. The
2006-07, debt of 19 States to the extent of State level VAT being implemented presently has
Rs. 4,595 crore was waived. During 2007-08, 21 replaced the erstwhile sales tax system of the
States are estimated to get debt waiver of Rs. States. Under Entry 54 of List II (State List) in the
4,812 crore. Debt consolidation and waiver have Seventh Schedule to the Constitution of India, “tax
facilitated States to achieve targets of elimination on sale or purchase of goods within a State” is a
of revenue deficit and containing fiscal deficit to State subject. The decision to implement State
GSDP ratio at 3 per cent well ahead of 2008-09. level VAT was taken in the meeting of the
Empowered Committee (EC) of State Finance Box 3.4 Salient features of the VAT design
Ministers held on June 18, 2004, where a broad
consensus was arrived at amongst the States to The rates of VAT on various commodities shall
introduce VAT from April 1, 2005. Accordingly, VAT be uniform for all the States/UTs. There are
two basic rates of 4 per cent and 12.5 per
has been introduced by all States/UTs by now. cent, besides an exempt category and a
Uttar Pradesh is the latest State which has special rate of 1 per cent for a few selected
introduced VAT on January 1, 2008. items. The items of basic necessities and
goods of local importance (up to 10 items)
3.58 Since sales tax/VAT is a State subject, have been put in the 0 per cent or the exempted
the Central Government is playing the role of a schedule. Gold, silver and precious stones
facilitator for successful implementation of VAT. A have been put in the 1 per cent schedule. The
4 per cent rate applies to other essential items
compensation formula has also been finalized in and industrial inputs. The 12.5 per cent rate is
consultation with the States, for providing residual rate of VAT applicable to commodities
compensation to them, during 2005-06, 2006-07 not covered by other schedules. There is also
a category with 20 per cent floor rate of tax, but
and 2007-08, for any loss on account of introduction the commodities listed in this schedule will
of VAT and compensation is being released not be VATable. This category covers items
according to this formula. Technical and financial like motor spirit (petrol, diesel and aviation
turbine fuel), liquor, etc.
support has also been provided to the States for
There is provision for eliminating the multiplicity
VAT computerization, publicity and awareness and
of taxes. In fact, several State taxes on
other related aspects. purchase or sale of goods (excluding entry
Tax in lieu of octroi) have been subsumed in
3.59 The Empowered Committee, through its
VAT or made VATable.
deliberations over the years, finalized a design of Provision has been made for allowing “Input
VAT to be adopted by the States, which seeks to Tax Credit (ITC)”. However, since the VAT being
retain certain essential features commonly across implemented is intra-State VAT only and does
States while, at the same time, providing a measure not cover inter-State sale transactions, the ITC
will not be available on inter-State purchases.
of flexibility to the States to enable them to meet
Exports will be zero-rated, and at the same
their local requirements. Box 3.4 gives the salient time, credit will be given for all taxes on inputs/
features of the VAT design finalized by the purchases, related to such exports.
Empowered Committee. There are provisions to make the system more
business-friendly. These include provision for
VAT Implementation – Experiences and self-assessment by the dealers, provision of
a threshold limit for registration of dealers in
challenges terms of annual turnover of Rs. 5 lakh, and
3.60 The initial experience of implementation provision for composition of tax liability up to
annual turnover limit of Rs. 50 lakh.
of VAT has been very encouraging. The new
States have been allowed to continue with the
system has been received well by all the existing industrial incentives, without breaking
stakeholders. The transition to the new system the VAT chain. However, no fresh sales tax/
has been quite smooth. The EC is constantly VAT-based incentives are permitted.
reviewing the progress of implementation of VAT.
The revenue performance of VAT implementing of 2005-06. This indicates that the VAT system
States/UTs has been very encouraging so far, as is gradually stabilizing and has started yielding
can be seen from the following: the desired results.
(i) During 2005-06, the tax revenue of the 25 VAT (iii) During 2007-08, the tax revenue of 32 VAT
implementing States/UTs had registered an States/UTs showed a further growth of 14.6
increase of around 13.8 per cent over the tax per cent during the first six months of 2007-
revenue of 2004-05, which is higher than the 08 (April-September) as compared to the
Compound Annual Growth Rate (CAGR) of corresponding period of last year.
sales tax revenues of these States for the last Status of VAT compensation
five years up to 2004-05.
3.61 The Central Government had announced
(ii) During 2006-07, the tax revenue of the 31 VAT a compensation package under which the States
State/UTs had collectively registered a growth are compensated for any revenue loss on account
rate of about 21 per cent over the tax revenue of VAT introduction at the rate of 100 per cent of
revenue loss during 2005-06, 75 per cent during for goods as well as services, it is proposed to
2006-07 and 50 per cent during 2007-08. Central introduce a combined national level goods and
Government has received claims totaling Rs. services tax (GST). This is similar in concept to
13167.3 crore during 2005-06, 2006-07 and 2007- State VAT for goods. It provides for input tax credit
08 (January 31, 2008). It has already released Rs. at every stage for tax already paid till the previous
9247.6 crore and claims of the balance amount transaction. This will also attempt to provide a
are in process (Table 3.13). rational system by subsuming several State and
Central level indirect taxes on goods and services.
Central Sales Tax Reforms The design and roadmap for this is being finalized
3.62 It is generally agreed that the Central in consultation with the Empowered Committee of
Sales Tax (CST), being an origin-based non- States. This is targeted to be introduced with effect
rebatable tax, is inconsistent with the concept of from April 1, 2010.
VAT and needs to be phased out. After
deliberations with the Empowered Committee of CONSOLIDATED GENERAL
States, the roadmap for this has been finalized, GOVERNMENT
which provides for a gradual phase out by reducing 3.64 The macroeconomic impact of the state
the CST rate from its level of 4 per cent with effect of public finances are best analyzed through the
from April 1, 2007, by 1 per cent every year, to be construct of “Consolidated General Government”.
finally phased out completely by March 31, 2010. With very limited data on local finances and the
Accordingly, the rate has been reduced to 3 per grant-dependent nature of local bodies in India,
cent with effect from April 1, 2007. This is due to the aggregation of State and Central Government
be reduced further to 2 per cent with effect from finances, after due process of adjustment for inter-
April 1, 2008. One critical issue involved in phasing Governmental transfers, is usually taken as the
out of CST is that of compensating the States for General Government finances. As a proportion of
revenue losses on account of such phase out. GDP, tax receipts of the General Government has
The scheme for compensation of CST revenue consistantly increased from 14.4 per cent in 2002-
loss due to the reduction of CST rate to 3 per 03 to reach 17.3 per cent in 2006-07 (RE) and is
cent with effect from April 1, 2007 had been budgeted at 17.8 per cent in 2007-08. The total
finalized in consultation with the Empowered expenditure stood at 28.3 per cent in 2002-03 and
Committee of States. During 2007-08 (BE), total has remained in the range of 26.8-28.5 per cent
amount of Rs. 2,500 crore has been provided for of GDP. There have been consistent reductions in
compensating the States/UTs. Claims for total the revenue and fiscal deficits as proportions to
amount of Rs. 1,865.9 crore have been received GDP since 2002-03 (Table 3.14). This reduction
from 9 States as on January 31, 2008. Out of this, was possible through the harmonized fiscal policies
an amount of Rs. 876.05 crore has been released being followed by both the Central and State
and for the balance amount of Rs. 992.8 crore, the Governments. Sustaining this harmony in fiscal
claims are under process. balances is a critical requirement for reaping the
growth dividend through macroeconomic linkages
Planning to introduce goods & services
and to attain the FRBM targets. Figure 3.11 gives
tax
the trend of combined revenue and fiscal deficits,
3.63 To avoid double taxation and tax cascading as percentage of GDP, for the Centre and
and have a simple and progressive taxation system States.
Table 3.13 Release of funds under VAT compensation package
(Rs. Crore)
Year Claims No. of Release in Balance
received States 2005-06 2006-07 2007-08
2005-06 6942.9 10 2471.3 3696.2 597.9 177.5

2006-07 4334.1 9 - 395.9 896.3 3041.9
2007-08 1890.3 2 - - 1190.0 700.3
Source : Ministry of Finance, Department of Revenue.
Table 3.14 Combined rceipts and disbursements of the Central and State Governments
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
(RE) (BE)
1 2 3 4 5 6 7
(Rs. crore)
I. Total receipts (A+B) 7,10,177 8,40,675 8,75,621 10,14,689 11,24,687 13,11,122
A Revenue receipts (1+2) 4,46,749 5,11,038 6,05,180 7,07,054 8,69,940 9,96,266
1 Tax receipts 3,52,899 4,08,097 4,85,375 5,76,596 7,18,788 8,34,094
2 Non-tax receipts 93,850 1,02,941 1,19,805 1,30,458 1,51,152 1,62,173
of which
Interest receipts 17,060 17,987 16,500 18,735 17,301 18,805
B Capital receipts 2,63,428 3,29,637 2,70,441 3,07,635 2,54,747 3,14,856
of which:
a) Disinvestment proceeds 3,151 16,953 4,424 1590 a 3582 a 51752 a
b) Recovery of loans & advances 12,709 26,062 14,441 11,651 11,359 5,592
II Total disbursements (a+b+c) 6,95,203 7,86,112 8,57,644 9,59,855 11,48,824 13,09,897
a) Revenue 6,11,809 6,72,702 7,22,675 8,06,366 9,58,942 10,55,770
b) Capital 64,757 85,821 1,12241 1,32,585 1,70,106 2,33,920
c) Loans and advances 18,637 27,589 22,728 20,904 19,776 20,207
III. Revenue deficit 1,65,060 1,61,664 1,17,495 99,312 89,002 59,504
IV. Gross fiscal deficit 2,33,594 2,32,059 2,33,236 2,39,560 2,63,944 2,56,286
I Total receipts (A+B) 28.9 30.5 27.8 28.3 27.1 27.9
A Revenue receipts (1+2) 18.2 18.6 19.2 19.7 21.0 21.2
1 Tax receipts 14.4 14.8 15.4 16.1 17.3 17.8
2 Non-tax receipts 3.8 3.7 3.8 3.6 3.6 3.5
of which
Interest receipts 0.7 0.7 0.5 0.5 0.4 0.4
B Capital receipts 10.7 12.0 8.6 8.6 6.1 6.7
of which:
a) Disinvestment proceeds 0.1 0.6 0.1 0.0 0.0 0.0
b) Recovery of loans & advances 0.5 0.9 0.5 0.3 0.3 0.1
II Total disbursements (a+b+c) 28.3 28.5 27.2 26.8 27.7 27.9
a) Revenue 24.9 24.4 22.9 22.5 23.1 22.5
b) Capital 2.6 3.1 3.6 3.7 4.1 5.0
c) Loans and advances 0.8 1.0 0.7 0.6 0.5 0.4
III. Revenue deficit 6.7 5.9 3.7 2.8 2.1 1.3
IV. Gross fiscal deficit 9.5 8.4 7.4 6.7 6.4 5.5
Source: Reserve Bank of India.
a Also includes sale of “land and propoerty” and debt relief.
Note: 1. The ratios to GDP at current market prices are based on CSO’s new 1999-2000 series.
2. Data pertaining to State Governments relates to budget of 28 State Governments and are provisional
from 2006-07 onward.
3. The data do not cover Union Territories with Legisltature, i.e. National Capital Region Territory of Delhi
and Puducherry.
Figure 3.11 Combined (centre and states) revenue and fiscal deficit
12
Percentage of GDP
10 Gross Fiscal
Deficit
8
6
Revenue
4 Deficit
2
0
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07(RE)
2007-08(BE)
Years
CHALLENGES AND OUTLOOK developments that have a bearing on India’s

3.65 In the year 2007-08, the process of fiscal domestic economy would remain critical.
consolidation was carried forward on the strength 3.66 The enactment of fiscal responsibility
of buoyant tax revenues and prudent expenditure legislation by 26 States has moved the rule-based
management. The targets of revenue and fiscal programme of fiscal reforms further ahead.
deficits for the year 2007-08, indicated in the Notwithstanding the variation across the States,
Medium Term Fiscal Policy Statement of the
the consolidated revenue balance is budgeted to
Government, in terms of the FRBMA 2003, appear
show a surplus of 0.3 per cent of GDP in 2007-
to be well within the reach. Further, as the trends
08. Achievement of the targets set under the fiscal
of receipts indicate, it may not be very difficult to
responsibility legislations has not only consolidated
achieve the target of 3 per cent fiscal deficit by
the fiscal health of the States but it has also
2008-09. However, the target of bringing revenue
improved the credibility of their budgetary
deficit to zero by the end of the 2008-09 would
remain a challenge. In this context it is important operations. However, it is necessary to remain
to note that, to a large extent, the current revenue vigilant. The real challenge lies in improving the
buoyancy is riding on the performance of the deficiencies in their targeted expenditure to achieve
economy which is more globalized than ever the goal of inclusive growth envisaged in the
before. A closer monitoring of the global economic Eleventh Five Year Plan.


Chapter 3

Uploaded by

Copyright:

Available Formats

Chapter 3

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 3

Uploaded by

Copyright:

Available Formats

CHAPTER 3

Fiscal Developments and Public Finance

I n a developing economy, demand for

Figure 3.1 Trends in deficits of Central Government

Figure 3.2 Receipts and expenditure of the Central Government

expenditure. Higher growth in revenues relative to Budgetary developments in 2007-08

Table 3.3 Sources of tax revenue

deduction in respect of medical insurance premium business of biotechnology or in the business of

Box 3.1 Service Tax

A. Following services were individually specified as taxable services:

B. Changes made in the scope of specified taxable services:

C. Threshold limit for small service providers

D. Secondary and Higher Education Cess:

Table 3.4 Service tax–A growing revenue source

Tax rate Revenue Growth

Table 3.5 Collection rates for selected import groups

Figure 3.4 Collection rates for selected import

Figure 3.5 Trends in Centre's revenue expenditure

Figure 3.6 Composition of revenue expenditure

28.4 28.4 29.9 32.0 33.0 Others

12.7 13.4 14.0

17.5 18.3 and UTs

from a high of 51 per cent in 2002-03 to 34.6 per Subsidies

Average Interest Cost

Per cent per Annum

Table 3.7 Outstanding liabilities of the Central Government

Figure 3.9 Debt GDP ratios

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Box 3.2 Framing of Regulations of Audit and Accounts by C&AG

Audit of fraud and corruption cases

Table 3.9 Central Government finances

2007-08 April-December Column 4 % Change

Source: Controller General of Accounts.

Source: Controller General of Accounts, Department of Expenditure, Ministry of Finance

Box 3.3 Certain Issues relating to accounting system

Table 3.12 Receipts and disbursements of State Governmentsa

Figure 3.10 Revenue and fiscal deficit of states

Table 3.13 Release of funds under VAT compensation package

2005-06 6942.9 10 2471.3 3696.2 597.9 177.5

CHALLENGES AND OUTLOOK developments that have a bearing on India’s

You might also like