Target to reduce fiscal deficit yet to be achieved

Bangalore Aug. 10. Though the Medium Term Fiscal Plan (MTFP) for 2003 to 2007 has spoken of the State being on the verge of achieving fiscal stabilisation, the target fixed for reducing the fiscal deficit as set out in the previous Plan that had covered the period from 2001 to 2005, is yet to materialise.

In the earlier MTFP, the Government had set before itself the goal of reducing the fiscal deficit from the level of 3.66 per cent of the Gross State Domestic Product (GSDP) which prevailed in 2000-01 to three per cent of the GSDP by 2004-05. The earlier Plan had envisaged phasing out of the revenue deficit from 1.49 per cent by 2004-05 and avoiding borrowing to meet current expenditures.

The MTFP presented to the State legislature last week states that subject to GSDP and inflation assumptions, the fiscal deficit is expected to improve from 4.45 per cent in 1999-2000 to 2.99 per cent in 2005-06. It is expected to be 4.62 per cent this year and reduce to 3.8 per cent next year (2004-05). The target fixed for next year was three per cent in the earlier plan.

The revenue deficit is now expected to disappear by 2005-06. This year, it will be of the order of 1.63 per cent of the GSDP, which is, however, a significant drop from last year's 2.87 per cent. The MTFP places the current public debt of the State at Rs. 43,656 crore as against Rs. 23,047 during 1999-2000 when the present government came to power. In the four-year period, the total debt stock as a percentage of the GSDP has gone up from 24.18 to 33.41. It is expected to peak to 34.05 per cent next year (Rs.49,283 crore) and decline in percentage terms from 2005-06 onwards. The debt stock will rise to Rs. 54,122 crore during 2005-06 and Rs. 59,169 crore during 2006-07. This year, the Government will spend Rs. 4,673 crore on debt servicing.

The Government has reiterated its determination to introduce VRS for its employees and also go in for the privatisation of the service sectors, and close down its unviable industrial units. The VRS recommended by the State's Administrative Reforms Commission headed by the former Law Minister, Haranahalli Ramaswamy, had found mention in the first MTFP too but has not been implemented owing to various reasons. The new MTFP also speaks of redeployment and rationalisation of government personnel. The Plan notes that although salary and pension as a percentage of GSDP stood at seven per cent, it was on the decline. Besides the issue of controlling expenditure, there was also the need to improve the quality of services by the Government, something that required rightsizing along with outsourcing of functions that could be provided by the private sector. Rightsizing the government and reducing the salary and administrative expenditure significantly would be key objectives. The Government has now planned to approach the World Bank for technical assistance in creating a human resource database to monitor information on active government servants. The database was expected to assist in capacity building, staff deployment, and accurate salary, perquisites, pensions, and government insurance estimation. It was aimed at establishing a computerised payroll.

Restructuring of departments, abolition of divisional-level posts, and removal of 80 per cent of the vacant posts except in the Police, Forests, Education, and Health departments, was expected to reduce salary and related non-salary expenditure in the coming years.