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Economists ask govt to improve quality of Budget

Last Updated 09 May 2019, 10:25 IST

Top economists on Thursday urged the Centre and state government to improve the quality of their Budget and warned against making projecting deficit targets which cannot be achieved.

“Quality of Budgeting needs to improve. Governments should not budget for a low fiscal deficit, knowing fully well that it cannot be achieved,” a host of economists and member of Prime Minister's Economic Advisory Council, Ashima Goyal told the Finance Commission in a meeting.

The caution came a day after the Reserve Bank of India flagged concerns of more fiscal slippage by states in the wake of huge farm loan waivers, income support schemes and the Uday bonds for their power distribution companies.

“Indications are that the fiscal deficit to GSDP ratio of the states taken as a whole is gradually declining, after the spike seen in 2015-16 and 2016-17,” the economists including, Soumya Kanti Ghosh from the State Bank of India and Prachi Mishra, an economist at Goldman Sachs warned.

The government had missed the budgeted fiscal deficit target of 3.3% in 2018-19 and revised it to 3.4%.

They also suggested working with available data for the projection of near-accurate Goods and Services Tax (GST) revenues.

“Projections of revenues from GST is tricky, but not impossible if one can work with the available data,” they suggested.

The 15th Finance Commission, chaired by N K Singh, will make recommendations by October 2019 for five years commencing April 1, 2020.

During the meeting, economists also made suggestions regarding the formula for "horizontal devolution" of central taxes among states and the provision of grant-in-aid to the state governments.

Economists also made suggestions regarding the formula for horizontal devolution of Central taxes among states and the provision of grant-in-aid to the state governments.

These suggestions related to the weight of income distance in the devolution formula, the need to consider the quality of forests in addition to its quantity and the need to consider and incentivise human development through a system of grants or tax devolution. A few economists also urged that intra-state inequality is another aspect that begs for the consideration of the Finance Commission.

Given the shift from the use of the 1971 population to 2001 population, some economists pointed towards the need for instituting an incentive structure in devolution. The composition of the population in terms of the proportion of elderly is becoming significantly different across states.

Some economists urged the Finance Commission to consider reinstating the system of specific-purpose grants to ensure the development of social sectors and other sectors that require hand-holding.

Economists present at the meeting included Rupa Rege Nitsure, Saugata Bhattacharya, Samiran Chakraborty, Pranjul Bhandari, Ashu Suyash, Anjan Deb Bose, Naresh Takkar, Ajit Ranade and S. L Shetty among others.

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(Published 09 May 2019, 10:10 IST)

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