The formulation of the budget estimate for 2011-12 could be attempted by the Union Finance Minister, Pranab Mukherjee, from a comfortable position as the developments in 2010-11 so far have been extremely favourable. The growth in GDP will be higher at 8.6 per cent in 2010-11 against 8 per cent and 6.75 per cent in the two previous years. The brisk recovery in the agricultural sector took place following the satisfactory behaviour of the monsoon. Agricultural production is estimated to be higher by 5.4 per cent in the 2010-11 season against 0.4 per cent previously. Industrial output will be rising by 8.6 per cent while the services sector will post a 9.6 per cent increase. It is assumed that the performance of the agricultural sector will again be creditable in the 2011-12 season and the industrial and services sectors will be improving on the performance of 2010-11. The growth in GDP in the next financial year is expected to be higher at 9 per cent, thus enabling the economy to be placed again in the earlier growth path.
Buoyancy in economy
The Finance Minister, however, will not have the advantage of the sizable incremental tax revenues of Rs.46,500 crore and the windfall revenue of Rs.67,500 crore from 3G spectrum and BWA auctions in 2010-11. On the present occasion, however, we will not be having the same advantage as the concessions in direct taxes, even allowing for the revenue that will be derived from the increase in the minimum alternate tax (MAT) to 18.5 per cent, will result in a revenue loss of Rs.11,500 crore. The changes in excise and import duties will fetch Rs. 11,300 crore resulting in a loss of Rs. 200 crore. The reliance is, therefore, mainly on continued buoyancy in the agricultural, industrial and services sectors.
On the basis of the revised estimate, the targets under various heads will be comfortably exceeded there being an increase of Rs.40,237 crore in gross tax revenue over the budget estimate or 35.43 per cent of the earlier visualised growth. This measure of growth in tax receipts over the budget estimate has not been witnessed in recent memory. As there was also a bonanza in non-tax revenues, the Finance Minister could easily incur revenue expenditure on a big scale and yet reduce the revenue deficit to Rs.2.70 lakh crore from Rs. 2.77 lakh crore.
While it is anticipated that income tax receipts will rise further in 2011-12, the target for corporate tax revenues would appear to be ambitious as the experience in the current financial year has not been heartening. Since it is felt in industry circles that there would be a contraction in profit margins due to cost-push inflation the additional corporate receipts can be realised only if it is hoped that there would be windfall gains. It will be a welcome development if the budget estimate of tax revenues is exceeded.
The fiscal deficit will also be increasing to Rs.4,.13 lakh crore in 2011-12 from Rs. 4.01 lakh crore (2010-11 RE). Though in terms of percentage there will be a further decline to 4.6 per cent from 5.1 per cent. This decline can take place only if the growth in GDP is higher at 9 per cent in terms of constant prices and a more impressive rise in GDP at current market prices. Unlike in 2010-11, these estimates can be realised, if not exceeded, only if the agricultural sector acquits itself creditably and industrial and services sectors perform satisfactorily, as stated above. A definite view can be taken in this regard only after it becomes clear that the monsoon will behave satisfactorily in the forthcoming kharif season and new records can be established in the yield of food and cash crops. The services sector for its part can be expected to increase the forex earnings though an increase of 10-12 per cent in industrial output can be ensured only if the capacity constraints in some directions can be overcome.
The outlays on ongoing and new schemes in the mining and power sectors as well as those relating to capital goods enterprises should be stepped up in a big way. Thus, it has become imperative to augment the pool of forex and rupee resources in a manner which has not been witnessed so far. The developments in the coming months have therefore a special significance. The reaction to the budget proposals in the bourses has of course been favourable as it is felt in knowledgeable quarters that greater emphasis on the strengthening of the capability of the agricultural sector and the continued high level of government spending will have a stimulating effect and there will be higher balanced economic growth.
