'Govt needs to focus on key areas in view of resource crunch’

Amid limited scope for increasing expenditure during the 12th Five-Year Plan beginning next month, the Government needs to focus on key areas such as health and infrastructure, the Economic Survey said today.

“The limited scope for increase in Gross Budgetary Support (GBS) would be a binding constraint in allocations to improve sectors such as health, education and infrastructure. Thereby, strict prioritisation will have to be enforced in the Twelfth Plan to achieve sectoral growth targets,” the Economic Survey 2011-12 said.

The GBS, or Plan expenditure, is the amount which is released by the Centre for various social sector schemes such as rural employment guarantee and also includes assistance to States.

The Government is in the process of increasing spending on social sectors such as health and education as a percentage of GDP. It is planning to increase expenditure on health from 1.4 per cent of GDP in the 11th Plan (2007-12) to 2.5 per cent in the 12th Plan.

According to the Survey, aggregate resources for the Centre are to fall from 14 per cent of Gross Domestic Product in 2011-12, to 13.11 per cent of GDP in the terminal year of the 12th Plan (2016-17).

It also projected the resource crunch for GBS against the backdrop of the Government’s plan to reduce the fiscal deficit to 3 per cent of GDP in the final year of the 12th Plan (2016-2017) from 4.7 per cent in 2010-11. It is expected to touch 5.5 per cent levels this fiscal.

The size of GBS is projected to increase mainly due to the projected decline in non-Plan expenditure from 9.09 per cent of GDP in 2011-12, to 7.36 per cent of GDP in 2016-17.

The non-Plan expenditure, which mainly includes recurring expenditure such as salary bills and interest payments, will grow at around 10 per cent, it said.

It also suggested that effective targeting of subsidies such as for fuel, fertilisers and food would be critical for achieving resource targets in the 12th Plan.

The document also asked to push critical tax reforms for generating additional resources for Plan expenditure.

The Government is in the process of introducing the Goods and Services Tax which would subsume the Central and State levies and improve revenue collections.

Besides, the Government is in the process of introducing the Direct Tax Code to replace the decades-old Income Tax Act, 1961, for improving efficiency to maximise revenue collections.

The Survey observed that subsidies would decline to 1.24 per cent of GDP in the final year of the 12th Plan from 1.6 per cent in the current fiscal.

The Plan expenditure is expected to increase by about 0.83 percentage points of GDP to 5.75 per cent in the terminal year of the 12th Plan from 4.92 per cent of the GDP in 2011-12.