Thursday 21 September 2000 Blazing oil prices add to fiscal strain By Priya Ranjan Dash

NEW DELHI: The Centre's finances are under severe strain. The finance ministry is deluged with demands from a host of other ministries for higher allocations and revenue sacrifices amounting to thousands of crores of rupees. The ministry has so far been able to manage its finances within the Budget this year. But it now looks almost certain that it will have to give in to many of these demands.

The petroleum ministry is pressing for customs and excise duty cuts on crude and oil products to spare domestic consumers a hefty hike in the prices of petroleum products consequent to the spurt in global oil prices. The two ministries have been holding hectic consultations for the past two days on the proposal to cut duties, which entails a revenue sacrifice of Rs 12,000 crore.

Excise sops for small-scale industries announced by the Prime Minister on August 30 has meant a revenue loss of Rs 500 crore. A 3 per cent hike in dearness allowance for government staff with effect from July is on the cards and that would imply an outgo of Rs 1,200 crore. Add to this the Rs 4,000 crore in food subsidy required to implement the proposal from public distribution minister Shanta Kumar to supply free foodgrains to the poorest of the poor.

Officials in the finance ministry reckon that the coming fortnight would be crucial as political decisions on these issues are likely to be made shortly. Depending on these, a major mid-stream re-ordering of the Budget may have to be undertaken during the winter session of Parliament.

The officials argue that the emerging fiscal difficulties were mainly because of external factors such as the global oil shock, which could not have been anticipated in the budget. They maintain that the finance ministry is still hopeful of containing the fiscal deficit within the targeted 5.1 per cent of gross domestic product this year.

Four months into the financial year up to July, the Budget has been on track. The improved budget management this year has been reflected in the Centre's fiscal deficit at the end of July, which at Rs 35,642 crore was just 32 per cent of the Budget estimates for 2000-2001. The corresponding figure for April-July last year was 57.4 per cent.

The fiscal deficit has been kept under the Budget limits this year primarily as a result of expenditure control. Total expenditure up to July this year amounted to Rs 80,727 crore -- 23.8 per cent of the Rs 3,38,487 crore budgeted for the year as a whole. By July last year, thanks to the Kargil conflict and other factors, there had been a heavy expenditure over-run. The government had already spent 28.8 per cent of its budget.

There has also been tighter control this year on the non-Plan expenditure, which mainly comprises interest payments and spending on salaries and wages, defence and subsidies. Up to July this year, non-Plan expenditure amounted to Rs 57,228 crore, or 22.9 per cent of the budget estimates. A year ago, this had amounted to almost 30 per cent of the budget estimates.

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-- Martin Thompson (mthom1927@aol.com), September 20, 2000