constituted - of Planning Commission

payments as a proportion of non-plan expenditure is expected to fall in therange between 35.21 per cent and 39.99 per cent during the award period of theThirteenth Finance Commission.As per the Medium Term Fiscal Policy Statement (MTFPS) 2011-12, during theperiod 2004-05 to 2007-08, fiscal consolidation aided with lower interest rateregime had helped the Government in bringing down interest payment aspercentage of net tax revenue of Central Government to 38.8 per cent in 2007-08 from a high of 56.5 per cent in 2004-05. However, higher fiscal deficitduring the crisis period, resulted in higher interest outgo which coupled withmoderation in net tax revenue, has pushed up the proportion of interest paymentto net tax revenue to Centre to 46.7 per cent in 2009-10. With resumption offiscal consolidation by the Central Government, this proportion is estimated toimprove to 40.3 per cent in BE 2011-12. This indicates that any slippage onfiscal front even for one or two financial years may entail lower resources fordevelopmental expenditure in future as interest payment will elbow out otherexpenditures from Government’s net tax revenue. In the medium term, thisproportion is projected to further improve to 38.4 per cent and 36.1 per cent in2012-13 and 2013-14 respectively. Interest payment as a proportion of GDP isestimated to decline from 3.3 per cent in 2009-10 to 3.0 per cent in BE 2011-12and 2.9 per cent by 2013-14. As per the Statement, the risk associated with theabove projections are a significant change in interest rate in the coming years orlarger than projected fiscal deficit for the corresponding period.The projections made by the group are based on the assumed GDP growth of14.5 per cent in nominal terms and assume an interest rate of 8.7 per cent for netincremental borrowing adding to the stock. On the opening balance of thestock, interest is assumed at effective interest rate. Interest payments during theTwelfth Plan period are therefore calculated as under:-Working Group Report on Centre’s Financial ResourcesPage-33