EDITORIAL: The summary of consolidated federal and provincial fiscal operations 2021-22 for the first quarter of the current fiscal year (July-September) reveals positive macroeconomic trends. First, the Gross Domestic Product (GDP) rose to 53.86 trillion rupees as opposed to 45.5 trillion rupees during the first quarter of last year and 47.7 trillion rupees for the entire year 2020-21 or, in other words, GDP rose by 13 percent in the first quarter of the current year against the 3.94 percent growth for July-June 2020-21 – a rise that supports the Advisor to the Prime Minister Shaukat Tarin’s claim that growth in the current year would be higher than 5 percent. The data, however, does not indicate the source of the rise in GDP and if taken in conjunction with the Monthly Economic Update and Outlook October 2021 one would assume that the major contributors continue to be large-scale manufacturing growth in September (estimated at 12.74 percent in August) due to high consumer demand as well as improved outlook on increased crop outputs on the back of higher demand for inputs, including tractors and fertilizers.
Second, the tax revenue rose from 1.122 trillion rupees July-September last year to 1.532 trillion rupees in the comparable period of this year with the bulk of the rise attributed to Federal Board of Revenue (FBR) generating an additional 387 billion rupees in the first quarter compared to last year while provincial governments accounted for only 23 billion rupees. There is clearly a case for the provinces, or at least the provinces under the PTI rule, to take more proactive measures to raise their tax collections. However, what should be a source of satisfaction for Tarin, the architect of the last NFC (National Finance Commission) award, is that provinces received an amount of 807,519 million rupees in July-September 2021 against 503,982 million rupees in the comparable period of last year. At the same time, what must be concerning to the IMF (International Monetary Fund) and the general public is the fact that reforms to the tax structure to render it more equitable, fair and non-anomalous remained pending with the rise in FBR taxes mainly from (i) sales tax, (with the major portion coming from it levy on imports) a regressive form of taxation whose incidence on the poor is greater than on the rich, generating 624.4 billion rupees July-September 2021 against 435.7 billion rupees July-September 2020 followed by (ii) customs duties (indicating a rise in imports with a consequent negative impact on the trade balance) rising from 155.2 billion rupees in July-September 2020 to 221.2 billion rupees in the first quarter of 2021. The biggest loser in terms of revenue from other taxes was the petroleum levy that declined from 136 billion rupees July-September 2020 to only 13.3 billion rupees in the first quarter of the 2021 indicative of a massive rise in months to come in the following period to achieve the budgeted target.
Thirdly, the rise in revenue collection enabled a rise in current expenditure from 2.027 trillion rupees July-September 2020 to 2.232 trillion rupees in the comparable period of this year reflecting a rise of 155 billion rupees – with outlay on defence rising by 37 billion rupees (no doubt mainly due to the rise in salaries after being frozen for one year), grants to others by 60 billion rupees (to accommodate the Prime Minister’s signature expanding Ehsaas programme) and provincial expenditure by 81 billion rupees.
Public Sector Development Programme (federal) rose from 89.8 billion rupees first quarter last year to 108 billion rupees in the current year with provinces raising their annual development programmes from 89.8 billion rupees in the first quarter last year to 153.7 billion rupees in the comparable period of this year – injections that certainly fuel the growth rate.
What is particularly positive about the consolidated fiscal operations is that net lending to public sector entities has been contained considerably and declined from 50.7 billion rupees July-September 2020 to only 2.5 billion rupees in the comparable period of 2021.
All in all, it does appear to be a much better management of scarce resources. However, to assess the impact on the general public one would need inflation data (though needless to add the impact of a decline in the budget deficit from negative 1.1 percent July-September 2020 to negative 0.8 percent in the first quarter of 2021 would be positive on the general price level), unemployment figures and indebtedness (domestic and external) to make a more informed assessment.
Copyright Business Recorder, 2021
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