‘Expenditure on populist measures should be reduced'
With the economic environment bogged down by high inflation and overshooting fiscal deficit owing to problems of crude oil price volatility, eurozone crisis and overall global slowdown, leading economists on Wednesday suggested that the Budget for 2012-13 should be utilised as a policy instrument to restore domestic and global investor confidence and revive the India growth story. Participating in the pre-budget discussions with Finance Minister Pranab Mukherjee here, economists pointed out that rather than a mere annual statement of accounts, the primary policy focus of the Budget for the new fiscal should be to convey a serious policy message on fiscal consolidation along with steps to expedite tax reforms to mop up higher revenue and bring the economy back to a higher growth trajectory.
Concern was also expressed over the widening fiscal deficit, which crossed 92 per cent of the Budget target by December. FICCI Secretary General said, “Budget has to make a strong policy statement. Show the world that the government is serious on fiscal consolidation and the fiscal deficit will be reduced.”
Prime Minister's Economic Advisory Council (PMEAC) member M. Govinda Rao, who also attended the meeting, said the fiscal deficit in 2011-12, targeted at 4.6 per cent, could overshoot to around 5.6 per cent of the GDP (gross domestic product). “If fiscal deficit slippage is one per cent, next year if you want to bring it down to 4.1 per cent, there is going to be a huge problem,” he said.
Suggesting ways of achieving fiscal consolidation, some economists said that expenditure on populist measures should be reduced and leakage of funds provided for implementation of various programmes be curbed. In this regard, they suggested decontrol of diesel, imposition of higher excise duty on diesel cars and use of cash transfer system to distribute subsidies directly to targeted beneficiaries.
Some of the other suggestions pertained to speedy approval for mega projects held up for long in the field of power, steel and mining so as to send positive signal to corporate developers, implementation of the Centre's decision to open up multi-brand retail to foreign investment, infrastructure status to the aviation sector, amendment of the APMC Act to take perishable commodities out of its purview and higher expenditure on health and education.
On the fiscal side, suggestions related to extension of Section 80(i) of the Income-tax Act for at least another three years for attracting investment in infrastructure, abolition of the Security Transaction Tax (STT), reforms in tax administration, better tax-GDP ratio and budgetary incentives to tackle environmental problems.
Earlier, initiating the discussions, the Finance Minister said that he expected the economy to expand by over 7 per cent this fiscal with inflation easing to 6-7 per cent by the end of March.
Mr. Mukherjee also pointed out that apart from problems of the “era of coalition politics” in which “decisions are taken through consensus as you have to carry others with you”, the current fiscal was a challenging one owing to high inflation and a widening fiscal deficit. Besides, there was the problem of high crude prices and overall slowdown in the growth process in developed countries owing to which emerging economies including India had also to face the adverse impact of global slowdown, he said.