Thursday, November 15, 2007

Scrap Fiscal Act Target to compensate revenue defict by Sixth Pay Commission implementation

The Planning Commission, in its 11th Plan (2007-12) draft, has urged
side-stepping the zero-revenue deficit aim by 2009 that is mandated by
the Fiscal Responsibility and Budget Management (FRBM) Act. The 11th
Plan draft document, which was recently approved by the full Planning
Commission, held that maintaining zero-revenue deficit will
substantially limit the government''s ability to fund flagship
schemes. Finance Minister P Chidambaram has made it clear that the
government is bound by the FRBM Act, 2003, which mandates it to cut
the revenue deficit by a minimum of 0.5 percentage points every year.
In 2006-07, the Centre''s revenue deficit stood at 2 per cent of the
gross domestic product. The government has to eliminate this by March
2009. A zero-revenue deficit can restrict expenditure on health and
education, which creates human capital.

Revenue deficit is the difference between revenue expenditure and
revenue receipts. The Prime Minister''s Economic Advisory Council, in
its economic outlook for 2007-08, has said the central government''s
revenue deficit is unlikely to be removed by 2008-09 because of the
forthcoming Sixth Pay Commission's report and other unforeseens.