NREGS success mitigates adverse impact of global crisis; Direct Tax Code, GST implementation to broaden tax base

Maintaining that high food inflation remained “a major area of concern”, Finance Minister Pranab Mukherjee on Wednesday pegged economic growth for the current fiscal higher at 7.75 per cent and impressed upon the States the need to return to the path of fiscal consolidation at the earliest without compromising on the growth momentum.

Addressing State finance ministers at a pre-budget meeting here, Mr. Mukherjee reminded the States that just as revival of the economy through 2009 was “necessarily a collaborative effort” of the Centre and State governments, a menace of food inflation also has to be tackled in a similar way. He pointed that that while there were enough stocks of wheat and rice, the States have not been offloading the surplus which would have increased the availability in the market and thereby lead to easing of prices.

“A major area of concern is high food inflation; therefore collaborative efforts of the Central and State governments are required to tackle this problem... Offtake of surplus stock by the State governments are not satisfactory. Therefore, all the State governments may cooperate in this regard to lift these surplus stock allotted to them,” Mr. Mukherjee said.

Pointing to the sharp increase in food prices including that of rice, wheat, pulses, sugar and vegetables, Mr. Mukherjee admitted that the price rise in sugar could be attributed to as being a demand side issue. However, the price rise in rice, wheat, pulses and vegetables “is primarily a supply side issue that needs to be collectively addressed both in the short and the medium to long-term,” he said.

Supply chain

In this regard, the Finance Minister highlighted the need to address the problem of distribution to arrest the price rise in food items. He said there was a need to properly monitor not only the release of food stocks but also the sale of such food stocks in open markets. Effective management of supply chain and an increase in the offtake of wheat and rice from the Central pool would ease the pressure on prices of food products.

Reeling official data, Mr. Mukherjee pointed out that, up to January 10 this year, States had lifted only about 1.59 lakh tonnes against 10 lakh tonnes of wheat allocated for sale to retail consumers under OMSS (Open Market Sales Scheme). Similarly, only 2.9 lakh tonnes of rice had been lifted, as against five lakh tonnes allotted to them, he said, and asked the State governments to cooperate by lifting these surplus stocks so as to strengthen the public distribution system (PDS) in the country.

Alongside, Mr. Mukherjee also sought to remind the State ministers that like last year, this unique exercise would also provide valuable inputs for formulating the Union budget for 2010-11. When this fiscal’s budget was presented in July 2009, the Indian economy was going through a very difficult phase in the wake of the global financial meltdown. While revenues had dipped owing to the slowdown and tax concessions, the Centre allocated an additional Rs. 40,000 crore for the current year’s annual Plan over and above the Interim Budget in keeping with the states’ suggestion for enhanced allocation for rural infrastructure schemes. Similarly, the enhanced fiscal deficit limit enabled the States to avail themselves of additional borrowings totalling about Rs.21,000 crore.

Identifying the National Rural Employment Guarantee Scheme (NREGS) as a major initiative to directly address chronic poverty and unemployment in rural India, Mr. Mukherjee said: “The success of this programme has helped in mitigating the adverse impact of the crisis. In fact, I would go to the extent of saying that the momentum in rural economy has helped a relatively quick recovery of growth in the country. We need to replicate the successful models in other areas also to eliminate the stigma of having the highest number of poor people in our country.”

Even as these fiscal stimulus measures have started showing results by way of higher GDP growth, the high levels of public spending and decline in revenue have also resulted in deviation from the FRBM (Fiscal Responsibility and Budget Management) targets. In this regard, Mr. Mukherjee hoped that to return to the path of fiscal consolidation at the earliest in the long-term interest of the economy, the implementation of the Direct Taxes Code and the Goods and Services Tax (GST) would lead to broadening of the tax base, simplification of the tax structure and improvement in tax compliance.

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