Special Correspondent

Subsidies are a total drain on government expenditure

Subsidies eat into government expenditurePublic enterprises should raise funds in the marketHigh percentage of debt to GDP

NEW DELHI: An apex industry chamber has urged the Union Finance Ministry to increase the tax:GDP (gross domestic product) ratio to over 15 per cent apart from plugging distortions and leakages in its expenditure plans, to tackle the crisis in public finance. The tax:GDP ratio, it pointed out, has fallen to 9.3 per cent in 2003-04 from 10.6 per cent in 1987-88.

According to a paper brought out by the Associated Chambers of Commerce and Industry of India (Assocham) and Economic Management Institute (EMI) under Anand Gupta on `Reforming management of India's expenditure', nearly 12 per cent of the Government's total budgeted expenditure of Rs. 514,344 crore for fiscal 2005-06 is spent on extending subsidies in food, fertilizer and petroleum products and the target audience hardly gains out of it. Assocham said that the subsidies were a total leakage of government's expenditure. Releasing the paper on Tuesday, Assocham President, Anil K. Agarwal, said raising of the tax:GDP ratio was necessary given India's current public finance crisis.

"This itself is high, but if one integrates the finances of the Central and State governments with those of the local governments and public enterprises to get a measure of India's pubic sector deficit, the number will be much higher", he said.

The chamber suggested that financing needs of public enterprises should be met through open market borrowings.