Renowned economist Debapriya Bhattacharya Friday praised the fiscal measures in the new budget to raise investment and revenue collection, but said the concern over a growing fiscal deficit was not addressed.
"The fiscal measures aimed at raising investment and revenue collection are in the right direction ...But the steps to reduce the fiscal deficit to a safe limit are absent in the budget," he told a group of reporters giving his reaction to the proposed budget for fiscal year to June, 2001.

He said the budgetary deficit rose steadily from 4.14 per cent of the gross domestic product (GDP) in 1997 -98 to 6.15 per cent in 1998-99 and to 6.88 per cent in 1999-00. If the revenue earning target for the upcoming fiscal was achieved, the deficit would be 6.97 per cent in 2000-01, he added. The safe limit of deficit was obviously below six per cent and there were reasons to be concerned about the level of deficit during fiscals 1998-99 and 1999-00, he said. " Any deviation from the fiscal target may lead to serious problem notwithstanding other exogenous factors."

Bhattacharya's figures of deficit in percentage of the GDP for the outgoing and upcoming fiscals, however, differed from the figures available in the budget documents, which said the deficits would be 5.8 and 5.9 percent respectively. But the economist said his figures were correct as he calculated those using the figures in the budget documents.

Bhattacharya, the Executive Director of the Centre for Policy Dialogue (CPD), also questioned the figures of domestic and foreign contributions 10 the Annual Development Programme (ADP). The budget documents say the domestic and foreign contributions to the revised ADP of the current are 50.2 and 49.8 per cent respectively, and Bhattacharya said the figures will be just the opposite. Maybe, it was a printing mistake, he said.

But what is a matter of concern is that, of the nearly 50 per cent domestic contribution, 20 per cent was from bank borrowing and the remaining 30 per cent was from revenue surplus. He also voiced concern over financing budgetary deficit through public borrowing from the banking sector, which began in 1998-99 fiscal year, and said nearly 10.5 per cent of the fund available for financing the budget came through such practice during the year, which rose to 23.84 per cent in fiscal 1999-00 and was shown at 20.1 per cent in the new budget.

However, he appreciated the Finance Minister for his courage to include the provision of borrowing from the banking system, saying it was the testimony of the transparency in the government's financing method. Bhattacharya said the allocation for non-ADP projects had always been below Q.5 per cent of the ADP, but it rose to nearly one per cent in the ADP for the next fiscal year, maybe, to meet the government's electoral obligation. The highest such figure (2.56 per cent) was recorded in 1995-96 and that too was before the last general election, he noted.

He praised the government for raising social sector allocation in the ADP from 22.7 per cent in the revised budget for the outgoing fiscal to 24.65 in the next fiscal's ADP. Despite budgetary deficit, the increase in social sector allocation was a salutary effort, and this was the reflection of the government's commitment to the sector, he observed.

Bhattacharya said a steady decline in the tax-GDP ratio during the past four years was a matter of concern. The ratio fell from 7.8 per cent in 1996-97 to 7.5 per cent in 1997 -98, to 7.2 per cent in 1998-99 and to 7.1 per cent in 1999-00, he said, adding if the tax revenue earning target for the next fiscal was achieved, the figure would stand at 7.2 per cent.

However, he added, the composition of tax revenue improved with the ratio of direct tax rising to 14 per cent this year from the usual 10-11 per cent. The ratio would rise to 15.7 per cent in next fiscal year if the target was achieved, he said, adding the dependence on import duty fell below the usual 20 per cent during the current fiscal. "This is definitely a positive side," he said, also criticising the composition of current expenditure in the revised budget for the outgoing fiscal.

He said nearly 31 per cent of the revenue budget was spent in salaries and allowances of the government staff, 19.3 per cent in payment of interest against loans and five per cent was earmarked as lump sum allocation. In the new budget, 29.63 per cent was earmarked for salaries and allowances, 19.1 per cent for payment of interest and 9.2 per cent was kept as lump sum, allocation, he said, adding the lump sum allocation for the next fiscal was quite high.

Debapriya also said all these constituted nearly 60 per cent of the revenue budget, leaving the remaining amount for operational activities of the revenue budget. "This is as hospital and doctors are there, but no medicine to treat the patients. "On a question about the way to reduce the budgetary deficit below the safe limit of six per cent, he said the lump sum allocation could be withdrawn. But that would not happen because this was possibly allocated keeping in mind the next general elections, he added.