JOIN USThe Economic Survey’s growth estimate of 5.4-5.9 per cent for the current fiscal seems reasonable given the pickup in industrial and services growth in the last three months, while acknowledging the broadbased slowdown in GDP growth.
Widening the tax base while combating inflation, with some help from RBI’s targeted focus on CPI, are critical to achieving fiscal consolidation, as the survey points out. It is heartening, as the survey implies, that the finance ministry and RBI are on the same page when it comes to combating inflation. Equally significant is the fact that finance minister Arun Jaitley recently came up with a ballpark of 4.5 per cent for fiscal deficit, instead of the earlier targeted estimate of 4.1 per cent. The survey also suggests workable steps to push tax and expenditure reforms and legal and regulatory frameworks for the market economy for achieving 7-8 per cent in the coming years.
The survey recommends that a more predictable tax regime will place public finances on a sustainable path, and hence, the importance of fast-tracking implementation of the Goods and Services Tax cannot be overstated. Hence, it’s thrust towards a new Fiscal Responsibility and Budget Management Act is welcome. The Modi government has rightly prioritised the reforms engine by focussing on achieving a low and stable inflation regime, tax and expenditure reform and regulatory framework.
However, the growing subsidy element and falling capex vis-à-vis planned expenditure have seen quality of government expenditure deteriorating down the years. Consequently, tax-to-GDP ratio has stagnated and the survey looks to the government to address this.
While acknowledging that any drastic cuts in government cuts could crimp economic growth, the survey has insisted on rationalisation of fertiliser and food subsidies, despite the government achieving its fiscal targets last year. By revisiting the concept of direct cash transfers through linkages with newer developments such as biometric identification and payments through mobile phones, the survey has also expressed hope that the Aadhaar scheme will push subsidy rationalisation in a more logical direction.
In sum, the survey expects strong fiscal leadership from the Modi government instead of announcements which stretch public imagination and credulity. It is upto Jaitley to outline his plans to tackle low growth coupled with high inflation, while also taking advantage of the improved balance of payment and fiscal numbers. Today’s Budget should be an indicator.