The government would have to adopt belt-tightening measures and devise a strategy to make all sections of society share the pains of the recent flood havoc that has thrown a major challenge of rehabilitating the victims and rebuilding infrastructure facilities right from scratch.
Various options such as seeking the Central government nod for raising the borrowing limit are being explored. Another option being mooted is to cut at least 5% of government expenditure so that the savings could be diverted for the rehabilitation of the affected sections, mainly the indigent sections.
The government would have to tap sources for providing interest-free long-term loans to bring the affected back to normal life. More significant is the need for a strategy to make all sections of society share the pains of the disaster, so that the strain on the economy would be minimised.
Tax collection
According to Jose Sebastian, Associate Professor, Gulati Institute of Finance and Taxation, the government could mobilise about ₹7,500 crore by initiating a string of stringent measures without affecting the flow of funds to market so that the tax collection would not be affected.
“A 5% cut in all government expenditure across the board is the first option in hand to overcome the current crisis. The government could also seek a better deal from the Centre and also the nod for raising the borrowing limit. But raising the borrowing limit would again add to the financial burden and would only compound the woes in future. This calls for a cut in the salary of the higher income groups. This could be done at different rates for those in different income groups, lower rates for the lower income bracket and reasonably affordable rate for the high income category, without affecting their propensity for spending,” says Mr. Sebastian.
According to Mr. Sebastian, those in the higher income bracket spend only 50% of their earnings and the remaining end up as savings.
An average 7.5% cut in the salary and pension bills and also slashing of expenditure would give the government the leeway to take up the rehabilitation and reconstruction activities with ease.
