2.19 As for the State Level Public Sector Enterprises which made negative contribution towards plan financing the root cause of the problem continues to lie in the poor perform- ance of State tansport Corporations and the State Electricity Boards. The problem is more acute in the case of SEBs which in- curred commercial losses to he tune of Rs.
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6,332 crore in 1994-95 against Rs. 4,995 crore and Rs. 4,358 crore in 1993-94 and 1992-93 respectively. The inability of SEBs to raise tariff commensurate with the eco- nomic cost of electricity generation and dis- tribution also adversely affect financing of plan projects.
Borrowings and Miscellaneous Capital
Receipts 2.20 The projected financing pattern envis- ages 35.4 per cent of Centre's aggregate re- sources from borrowings (including MCR). The corresponding proportion in respect of States is 83.3 per cent, The period 1992-95, however, witnessed much higher dependence on borrowings by both Centre and States. While borrowings during this period ac- counted for 59.2 per cent of aggregate re- sources in respect of Centre, the corresponding proportion in the case of States worked out to 116.7 per cent. The com- bined dependence of Centre and States oil bor- rowings during 1992-95 accounted for 67.5 percent as against the projected level of 46.6 per cent of aggregate resources. It should be pointed out here that an increased reliance on borrowings for financing the Plan would in- crease the debt service burden which would ill turn result in a squeeze on resources for the Plan in subsequent years.
Net Capital Inflow from Abroad 2.21 The net capital inflow from abroad comprising only external aid (on net basis, i.e after repayments) accounts for 8.6 per cent of the aggregate resources in respect of Centre. As against the envisaged level of 8.6 per cent, net inflow of capital from abroad accounted for only 4.0% of Centre's aggregate resources during 1992-95.
Deficit Financing 2.22 The budgetary deficit projected for the Eighth Plan amounts to Rs.20,000 crores at 1991-92 prices. The projected financing pat- tern for the Eighth Plan does not indicate the estimated fiscal deficit during the plan period (1992-97). However, the estimated borrowing requirements of the Central Government, in- cluding the borrowings by the Central Public Sector Enterprises (CPSEs) amount to Rs.1,60,055 crores. When this is added to the projects budgetary deficit, the total amount rises to Rs 1,80,055 crores which accounts for 72.6 per cent of the approved Eighth Plan outlay in respect of the Centre. The borrowing requirement in respect of the States projected for the Eighth Plan amounts to Rs.84,500 crores. These figures however cannot be con- sidered as equivalent to Gross Fiscal Deficit (GFD) which represents the difference be- tween total Government expenditure and the sum of revenue receipts and non-debt capital receipts. In the case of the Centre the magni- tude of projected borrowing includes non-debt capital receipts, whereas in the case of States the projected borrowing does not include a part of Central Assistance for State Plans given by way of loans.
2.23 GFD, however, can be viewed as the difference between the sum of revenue deficit, capital outlay and net lending on the one hand and disinvestment of equity holdings of the Government in Public Sector Enterprises on the other. The trends in the composition of GFD for Centre as well as States during the first three years of the Eighth Plan may be seen from the following table:
Table 1
(Rs. in crore)
Amount
1992-93 1993-94 1994-95
(Actuals) (RE) (BE)
Centre
1. Revenue Deficit 18,574 34,058 32-727
2. Capital Outlay 13,619 1 3,229 14,123
3. Net lending 9,941 1 3,764 12,065
4. Disinvestment 1,961 2,500 4,000
GFD (1+2+3-4) 40,173 58,551 54,915
States
1. Revenue Deficit 5,114 6,055 7,948
2. Capital Outlay 10,655 12,187 14,781
3. Net lending 5,123 5,070 6,592
4. Disinvestment 0 0 0
GFD (1+2+3-4) 20,892 23,3 12 29,321
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2.24 The figures given above reveal that there has been a significant increase in the proportion of revenue deficit in GFD in respect of the Centre. Revenue deficit of the Centre consituted 46.2% of GFD in 1992-93 but rose to 58.2% and 59.6% in 1993-94 (RE) and 1994-95 (BE) respectively. As regards capital outlay, there was a substantial decrease in its share from 33.9% of GFD in 1992-93 to 22.6% in 1993-94 (RE) but rose to 25.7% in 1994-95 (BE). During the corresponding period the proportion of revenue deficit of the States in their GFD rose only marginally from 24.5 per cent in 1992-93 to 26.0 per cent in 1993-94 (RE) and 27.1 per cent in 1994-95 (BE). As regards capital outlay, the corresponding pe- riod witnessed a marginal increase from 51.0 per cent of GFD in 1992-93 to 52.3 per cent in 1993-94 (RE). This however declined to 50.4% in 1994-95 (BE). The substantial in- crease in revenue deficit in the case of the Centre during the first three years of the Eighth Plan was largely the result of significant in- crease in the burden of non-plan revenue ex- penditure on account of heavy interest payments.
Budgetary Support to Plan 2.25 The budgetary support to the Eighth Plan at 1991-92 prices amounts to Rs. 1,88,475 crore, or 43.4 per cent of the ap- proved Eighth Plan outlay. The remaining 56.6 per cent comes from the Internal and Extra Budgetary, Resources (IEBR) of CPSEs for their plans and own resources of States for financing their plans.
2.26 As mentioned in the preface to the Eighth Five Year Plan (Vol. I) budgetary sup- port is a crucial factor in the determination of outlays of sectors which do not have any access to internal resources or borrowings. Thus sectors like education, health, family welfare, agriculture etc. depend almost ex- clusively on budgetary support for financing their plan out lays. Even in the case of sectors like power, railways, coal etc. in the infra- structure sector, where the public enterprises generate interal. resources and have recourse to borrowings a minimum budgetary sup- port is necessary to protect the plan outlays of these sectors. As brought out in para 2.4 plan expenditure in key sub-sectors of the in- frastructure like power and roads fell far short of the pro-rata level of 60 per cent of the approved outlay during 1992-95, and higher outlay on those sectors during 1995-97 pre- supposes mote budgetary support.
2.27 The budgetary. support to Central Plan (including Union Territories) amounts to Rs. 1,09,975 crore, which accounts for 5 8.3 per cent of the total budgetary support In the Eighth Plan. The budgetary support to Cen- tral Plan, excluding Union Territories, amounts to Rs. 1,03.725 crore and accounts for 41.8 per cent of the total Central Plan outlay. Bulk of this budgetary support goes to the social sector (including Rural Develop- ment) which accounts for 51.8 per cent (Rs.53,678 crores) of total budgetary support to Central Plan, followed by infrastructure sector (21.7 per cent or Rs.22,487 crores) and Agriculture & Allied Activities (10.5 per cent or Rs. 10,894 crores). Within the Social Sec- tor, Rural Development accounts for 45.0 per cent of the total budgetary support for Social Sector followed by Education (13.9%), Family Welfare (12.1%) and Water Supply and Sani- tation (10.7%). As regards infrastructure sec- tor, power accounts for maximum share of 39.8 per cent of the total budgetary support to infrastructure followed by Railways (23.9%) Surface Transport (13.0%) and Coal (11.6%).
2.28 The budgetary support to States goes in the form of Central Assistance for State Plans, which consist of : formula- based Nor- mal Central Assistance. Additional Central Assistance for Externally Aided Projects; Special Central Assistance for Area Pro- grammes; and Transferred Centrally Spon- sored Schemes. The share of budgetary support for State Plans envisaged in the Eighth Plan accounts for 41.7 per cent of the total budgetary support to the Eighth Plan However, during the first three years of the Eighth Plan, the share of States in the overall budgetary support to the Eighth Plan (42.4%) was higher than that during the comparable period of the Seventh (33.4%) and the Sixth (33.2%) Plans. The proportion of formula- based Normal Central Assistance accounted for 53.5% of States Plan Outlay in 1992-95.
2.29 In the case of Union Territories the budgetary support envisaged in the Eighth Plan amounts to Rs.6,250 crore, or 3.3 per cent of the total budgetary support to the Eighth Plan.
2.30 During 1992-95, the budgetary support to Central Plan amounted to Rs. 58,930 crore. which accounts for 56.8 per cent of the ap- proved Eighth Plan budgetary support for Central Plan. In pro-rata terms this meant a shortfall in utilisation of budgetary support to the extent of Rs.3,302 crore at 1991-92 prices
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and Rs.4,746 crore at current prices. In the case of States, the Central Assistance for their Plans amounted to Rs.45,221 crore, or 57.6 per cent of the Central Assistance for State Plan envisaged in the Eighth Plan, thereby indicat- ing a shortfall of the order of Rs. 1,879 crore at 1991-92 prices and Rs.2,698 crore at current prices.
2.31 External aid constitutes a significant proportion of budgetary support to public sec- tor plan. External aid generally accounts for around 20% of the budgetary support to Cen- tral as well as State Plans (Central assistance). One major area of concern in regard to external aid has been the significant amount of the undrawn balance, which stood at Rs.26824 crore as on March 31, 1995. The trends in the utilisation of external aid separately for Centre and States can be seen from the figures given in Annex. 8. There has been an improve- ment in the pace of utilisation of external aid in the State sector as a result of promotional measures taken by the Government of India, namely, release of 100% aid for all sectors and release of advance additional Central Assis- tance at the beginning of the year to the extent of 25% of the expected annual disbursement of aid. However, problems relating to land acquisition for projects, paucity of counterpart funds to meet domestic component of total cost, etc. affect die absorptive capacity of both Centre and State Governments which in turn slow down the pace of utilisation of foreign aid.
Plan of CPSEs 2.32 The Plan outlays of CPSEs account for about 70-75% of the total Central Plan Out- lay. Part of the budgetary support to Central Plan goes towards the financing of plan out- lays of CPSEs. This now forms 20 - 25 per cent of the total budgetary support to Central Plan. The budgetary support is extended to CPSEs by way of both equity and loan. Equity component generally accounts for 55 to 60 per cent of the total budgetary support to CPSEs, Though the stated aim is to eliminate the de- pendance of CPSEs on budgetary support, the need to continue budgetary support persists because (1) CPSEs in infrastructure like power, transport, etc. are unable to recover the eco- nomic cost of rendering the goods/services produced by them, and (ii) there is a felt need for helping sick units with minimum necessary plan support.
Prospects for 1995-97 2.33 Analysis of plan expenditure has re- vealed severe shortfalls in plan expenditure in the State Sector. As regards the Central Sector, inspite of relatively less severe short- falls in overall terms, serious shortfalls oc- curred in the social sector, certain key infrastructure sectors and in some other im- portant sectors like agriculture and irrigation, which depend either exclusively or signfi- cantly on budgetary support. In the case of both Centre and States there were noticeable shortfalls in Agriculture & Allied Activities as well as in Irrigation & Flood Control. In order to make good these shortfalls it 'is necessary to step up plan outlays significantly during the remaining period of Eighth Plan.
2.34 The overall resource requirement, which takes into account the shortfall in plan expenditure during the first three years as well as the pro-rata outlay for the last two years, amounts to Rs.206145 crore at 1991-92 prices. The resources for financing plan out- lays of the CPSEs which form part of the central Plan will conic from the Internal and Extra Budgetary Resources of the Central Public Sector Enterprises for the Plan of CPSEs and from States' own resources for their plans. While profit making/resource rich CPSEs would be able to meet the ap- proved outlay, other CPSEs, especially those in the infastructure sector will not be able to protect their approved outlay in the absence of more budgetary support. Similarly, the plan outlays in respect of Ministries/Departments in the social sector require considerable step up in their plan outlays to enable them to make good the shortfall in the last two years of the Eighth Plan. Thus, budgetary resources would be required on a substantially larger scale during the last two years of the plan. This in turn pre-supposes more favourable Bal- ance from Current Revenues which can be secured through mor revenue collection and/or reduction in non-plan revenue expendi- ture.
2.35 Since budgetary support available for plan is a residual amount (difference be- tween revenue and capital receipts on the one hand and non-plan expenditure on the other), more budgetary resources for the plan of the Centre as well as the States can come through only in two ways : (a) higher residual amount either through more revenue and/or less non- plan expenditure, and (b) higher fiscal deficit
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to allow for larger amount of capital receipts. The prospects in this regard are discussed in the following paragraphs.
2.36 The Central budgetary support for the fourth year (1995-96) of the Eighth Five Year Plan has already been fixed at Rs.48,500 crore (B.E), which is higher than that in 1994-95 (BE) only by 4.3% in nominal terms. Of the aggregate amount of Rs.48.500 crore (B.E.) for 1995-96, total budgetary support for the Central Plan has been fixed at Rs.28,994 crore while total Central assistance for State and UT Plans has been fixed at Rs. 19,506 crore. Revenue expenditure is expected to comprise about 60% of total Plan expenditure in 1995-96, up from about 57% in 1993-94.
2.37 In assessing the resource availability question for the Annual Plan of 1996-97, LC. the final year of the Eighth Plan, the most important issue would be that of forecasting the tax revenues in respect of the four major central taxes viz., Income Tax, Corporation Tax, Union Excise and Customs Duties. The buoyancics of the major Central taxes have been computed, as detailed in Annex. IO, and have been applied to the respective bases to arrive at the projected tax revenues during 1996-97. It may be pointed out here that the Tenth Finance Commission TFC) Report (p.168) has also made separate estimates of buoyancy of the major Central taxes. The period of analysis of those estimates is 1983- 84 to 1992-93 whereas our period of analysis is 1990-81 to 1994-95. Our buoyancy esti- mates and those of the TFC in respect of the direct taxes are fairly close. For income tax and coporation tax we have the figures of 1. 14 and 1.28 as against the TFC figures of 1. 103 and 1.3 1 0. In respect of Union excise duties our buoyancy estimates are marginally lower (0.99 as against the TFC estimate of 1.013) which is mainly due to some rate reduction and rationalisation of the excise duty structure. As regards customs duties our estimate of 0.72 is significantly lower as compared to the figure of 1.389 in the TFC report. This is owing to two factors viz, (i) while the TFC has regressed Customs duties on GDP, we have chosen the value of imports as the explanatory variable and (ii) there has been a continuing across the board reduction in import tariffs after 1992- 93,the terminal year of the TFC analysis. For purposes of tax projections it is assumed that during 1995-96 GDP grows at a rate of 5.6%, with an inflation rate of 9%. For the terminal year of the Plan i.e. 1996-97, a GDP growth rate of 6%, with an inflation rate of 7%, is projected.
2.38 The remaining Central taxes which include, among others, Interest Tax, Expen- diture Tax, Wealth Tax, Gift Tax, etc. con- stitute only a small fraction, about 2.5%, of the gross tax revenue of the Centre. These have been assumed to grow at the same rate as nominal GDP. Of the gross tax revenues available to the Centre, a part of it, 77.5% of personal income tax and 47.5% of Union Ex- cise duties, constitutes States' share as per the Tenth Finance Commission (TFC dis- pensation. To the balance amount must be added the non-tax revenue to arrive at the total revenue receipts available with the Centre. Non-tax revenue has also been assumed to grow pari passu with nominal GDP.
Non-Plan Expenditure 2.39 The three principal items of non-plan expenditure are interest, defence and subsi- dies. Interest payments and defence expendi- tures in 1996-97 are projected at Rs.58,000 crore and Rs.29.000 crore, representing ill- creases over 1995-96 B.E. figures of 11.5 % and 13.7% respectively. As regards subsidies. a perusal of the data from 1 985-86 reveals that while the average growth of subsidies during 1985-89 was at a rate of 23%, the growth rate has been arrested significantly, during 1990- 95. It may not be unreasonable to expect that barring sonic unforeseen events subsidies in 1996-97 will not go beyond Rs.11,300 crore, growing at the same rate as observed over the last four years taken as a whole. As regards other non-plan expenditure (NPE) the major items are postal deficits, exchange loss under FCNR accounts scheme, general services, so- cial services, economic services, non-plan grants to states and UTs, non-plan loans to states and UTs, non plan capital outlay and non plan loans to public enterprises. The projec- tions of the non-plan grants to States have been carried out as per the recommendations of the Tenth Finance Commission.