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Top economists of the country have expressed deep concern over the rising revenue expenditure and subsequent meeting of such spending through costlier domestic borrowing. They also said the weak external balance poses a serious threat which has to be tackled effectively.
Dr Debapriya Bhattacharya, Executive Director of the Centre for Policy Dialogue (CPD), was giving his reaction yesterday on the proposed budget for fiscal 2001-02.

Dr. Debapriya Bhattacharya said a major task of the government in the next fiscal year would be to cut down budget deficit, utilise more foreign funds and borrow money from cheaper domestic sources. "There Is nothing one can do on income side but one thing the government should do is prudent expenditure management aiming at fiscal consolidation and backstopping of balance of payment (BOP)," Dr Bhattacharya said analysing the proposed for fiscal 2001-02. About the finance minister's commitment to form Public Expenditure Review Commission, he said the task of that commission should be to frame 'Fiscal Responsibility and Budgetary Management Act' aiming at limiting budget deficit, public debt and issuing of bonds.

Dr Bhattacharya said the budget framers deserve some credit for making it in a fragile fiscal situation. They were not unaware of the situation and that is why they tried to keep revenue expenditure far below the revenue income. He mentioned that the estimated revenue expenditure growth for the next fiscal is 5.6 per cent against revenue income growth of 12.7 per cent. But, he cautioned, if revenue expenditure cannot be kept within the budgeted target as happened in this fiscal year (2000-01), some serious problems could arise. This year, actual revenue expenditure growth was 11.2 per cent as against the budgeted target of 6.3 percent. But the most worrying thing, according to Dr Bhattacharya, is the increasing public expenditure that grew by 10 per Cent in real terms this year and overshot the budgeted target. Public expenditure this year stands at 12 per cent of' GDP as against the target of 6.4 pet cent. "The growth rate of public expenditure has almost doubled and the most dangerous thing is that it has happened on borrowed money," Dr Bhattacharya said. Analysing the public expenditure pattern this year, he said public administration topped the list with 20.7 per cent followed by domestic interest payment (19.4 per cent) and power and energy (14.3 percent). Almost the same thing is going to happen in 1he coming fiscal year as 19.7 percent of total public expenditure will go for administration and 9.8 per cent for domestic interest payment.
Giving an analysis of the revenue expenditure in this fiscal year, the noted economist said faster growth was in salary and allowances, which is 28.8 per cent of the total revenue expenditure, followed by subsidies and transfers (27 per cent) and interest payment (20 per cent). "These three account for more than 75 per cent of the total revenue expenditure."
Dr Bhattacharya mentioned that the government borrowing from non-bank sources in the form of saving certificate has increased more than the target this year and it is really worrying as the interest on this sort of borrowing is more than that of the bank sources. "It is better to borrow from banks, if necessary, as banks have excess liquidity and the government will have to pay lower interest." Talking on savings, the economist said it grew by 0.88 per cent, one of the lowest in South Asia, to 18.76 percent of GDP in fiscal 2000-01 and national savings grew by 0.68 per cent. The most disturbing thing is that the rate of investment growth was less than that of savings growth. Investment growth was 0.61 per cent and it reached 23.63 per cent from 23.02 percent of GDP. Turning to investment, Dr Bhattacharya said 82 per cent of the investment came from public sector, while only 18 per cent from private sector. He termed the situation a hesitant participation of he private sector in investment. If there is no improvement in savings investment balance, the country could fall into mid-term crisis, he thought. At the same time, he said, increase in sale of saving certificates might have a negative impact on private investment.

Reviewing the revenue growth and tax structure this year, the renowned economist observed that the most praiseworthy thing is that 15 per cent of the revenue earnings came from direct tax. However revenue is still very much dependent on import duty as 46 per cent of it comes from this source. In this context, he pointed out that if import falls, revenue income also falls dramatically but the rise in import creates balance of payment problem on.

Dr Bhattacharya mentioned that the revenue-GDP ratio, which is nine per cent this year, is far below what it should be. If the targeted revenue could be earned next year, the tax-GDP ratio, which would be 9.6 per cent, would still fall below the rates in other least developed countries. He suggested raising it to over 10 percent. He criticised the revenue target set for the next year with only 12.7 per cent growth. The NBR portion of revenue registered a growth of 14.7 per cent this year whereas the targeted growth next year has been set at 13.2 per cent. "On all heads, the target for the next fiscal year is lower than that this year. If anyone thinks this year's growth was extra ordinary, then there is nothing to comment."

Dr Bhattachrya, however, noted that for the first time in last 10 years. GDP growth rate crossed six. per cent this year. A sizable portion (44.6 per cent) of the growth came from the 'real economy' agriculture and industry and this is a good sign, he said. But an issue of concern is that per capita income grew by only 1.6 percent in terms of dollar and stood at 369 dollars, one of the lowest even in South Asia.

Dr Bhattacharya said the most praiseworthy thing is that the growth was achieved in a situation of low inflation and there was safety net programme for the left outs in the growth process.