Averting a fiscal wreck PDF Print E-mail
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The next government at the Centre should focus on GST and direct cash transfers to make deficit reduction more enduring and growth-promoting.Like in 2012-13 when the Centre’s fiscal deficit was kept below 5 per cent of GDP, it is a reduction in plan expenditure that has helped Finance Minister P Chidambaram achieve his fiscal target this year. Containing the deficit to 4.6 per cent in 2013-14 is a result of the combination of cuts and savings from the low utilisation of allocated funds. The Centre’s total plan spending this year according to the revised estimates is expected to be 79, 790 crore lower than the budgeted amount. It was a whopping 1, 07,400 crore below the Budget Estimate in the previous fiscal. It is such compression, as well as the rolling over of 35,000 crore of fuel subsidy payments to the next fiscal and making state-owned enterprises cough up some 14,300 crore of more-than-budgeted dividends, that has enabled the fiscal deficit to be contained below Chidambaram’s “red line” of 4.8 per cent. But did the Finance Minister have an alternative in a scenario where the Centre’s gross tax revenues and mop-up from disinvestment are slated to fall short of Budget Estimates by almost 1,07,000 crore? The easy thing would have been to blame these on the slowdown and merrily overshoot deficit targets. Thankfully, Chidambaram hasn’t succumbed to this temptation. Having gone completely out of control in the first three years of the UPA’s second term in office, the fiscal deficit needed to be reined in at any cost. Chidambaram should be given credit for restoring discipline over the last two years, even if not achieved by the best of routes. Cutting Plan spending isn’t desirable in the midst of a slowdown, but the cost of not adhering to fiscal targets and the negative perception it could trigger among global investors in these difficult times for emerging economies is far worse. Moreover, by steering the economy back on the path of fiscal consolidation, the Finance Minister has created some elbow room for the RBI to cut interest rates. Easing inflationary pressures and a stable rupee makes this more feasible. Lower interest rates  in tandem with the excise duty reductions on automobiles, two-wheelers and a host of capital goods and consumer non-durables effective till June announced in the interim Budget  can provide a much-needed boost to investor and consumer sentiment.Going forward though, both growth as well as fiscal consolidation requires more enduring policy interventions from the next government, whichever party leads it. Most important among these are introducing a nationwide goods and services tax (GST) and replacing all subsidies with direct cash transfers (DCT) to the Aadhaar-linked bank accounts of those deserving such support. By generating greater revenue buoyancy and cutting wasteful non-Plan expenditure  which is what GST and DCT will do  more public resources will be released for highways, railways, irrigation and other productive infrastructure investment. The economy-wide stimulus from this will bring more revenue for the government, resulting in a virtuous cycle of higher growth and fiscal consolidation. Hindu

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