The Union Budget for 2004-05, which is being viewed as a "litmus test" for the Congress-led government, may unveil the roadmap for wiping out revenue deficit well in advance by 2007 and a subsequent reduction in fiscal deficit to manageable limits.

The finance ministry, which has started the Budget making process, is expected to take valuable inputs from the committee on Fiscal Responsibility and Budget Management Act headed by Finance Minister's Advisor Vijay Kelkar, official sources told PTI.

The Kelkar panel is expected to spell out far-reaching reform measures to reduce fiscal deficit by widening of taxpayers base through phasing out exemptions, extension of service tax to more services, rationalising excise and customs duty rates, reduction in transaction costs and improvement in tax administration.

Finance Minister P Chidambaram is understood to be working out a timetable to hasten fiscal consolidation and reduce revenue deficit by 2006-07, which would be well in advance of the 2009 deadline set by the United Progressive Alliance in its Common Minimum Programme.

When revenue deficit is wiped out, the Centre's fiscal deficit would be manageable, sources said.

While the fiscal deficit is estimated at Rs 1,32,103 crore (Rs 1,321.03 billion) or 4.8 per cent of the GDP in 2003-04, revenue deficit is slated to be at Rs 99,860 crore (Rs 998.60 billion) or 3.6 per cent of the GDP.

The budget may be a litmus test for Chidambaram and the new UPA government as it has to reduce the fiscal deficit without drastic reduction in subsidies and going slow on the divestment programme, as it has been suggested by some of the allies of the government.

The Kelkar panel would take these factors into consideration while drawing up the roadmap to curtail deficit.

The panel is of the view that expenditure control would be difficult as the UPA government has committed to implement a reform with a human face.

So, Chidambaram may have to come up with special schemes to tap black money and find additional sources of revenue to bridge its fiscal gap.

The finance minister has to perform a balancing act of stepping up public investment in agriculture and infrastructure and at the same time reduce deficits.

The Kelkar panel views fiscal deficit as a hindering factor to attain high growth as it not only reduces government's ability to spend for new developmental schemes, it also crowds out private investments.

Moreover, high fiscal deficit also distorts the interest rate structure and smooth functioning of the financial sector in the country.