Kelkar committee report

2.
Assessment of the base year
The budget for 2012-13 assumed a nominal growth rate of 14 per cent over the
advance estimates of GDP of 2011-12. The Fiscal Deficit has been budgeted at 5.1 per cent of
GDP the Revenue Deficit at 3.4 per cent of GDP. The Effective Revenue Deficit is budgeted
at 1.8 per cent of GDP.
We have assessed the receipts and expenditure for 2012-13 afresh, given the current
macroeconomic and fiscal situation assuming no corrective steps are taken. In our assessment
the nominal GDP growth for the year would be at 13.5 per cent over the quick estimate of
GDP for 2011-12, which is lower than the advance estimate.
The first and foremost impact of the slowdown in the economy is expected to be on
tax collections. The budget has assumed an overall 19.5 per cent growth in tax collection in
2012-13 over the revised estimates (RE) for 2011-12. The actual tax collection in 2011-12
itself was Rupees 10,000 crore lower than the RE for 2011-12. Thus, to achieve the budget
targets for 2012-13, a growth of 21 per cent is required over actual collections in 2011-12.
Based on the collection trends of the first four months and correcting for the effect of
the indirect tax exemptions on petroleum products and the direct tax refunds for 2011-12, we
have assessed that the tax to GDP ratio will fall from 10.6 per cent as budgeted for 2012-13,
to 10.1 per cent in 2012-13. This shortfall is a combined effect of reduced corporate profits,
slowdown in industrial output and lower growth in imports. In our assessment, the shortfall
would have been even higher if the base and rate of Service Tax had not been increased. To
some extent, the reforms in Service Tax have neutralized the shortfall in collections from
other sources.
On the disinvestment side, it would be extremely difficult for the Government to
move ahead with its disinvestment programme, given the subdued equity market conditions.
In our assessment, a conservative estimate for disinvestment receipts, if no policy
interventions are made, would stand at around Rupees 10,000 crore.
On the expenditure side, subsidies pose the greatest fiscal risk. Although petrol has
been deregulated and price correction is taking place on a regular basis now, the under
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