Economists tell Govt to prune wasteful expenditure

Economists, on Wednesday, sounded a note of caution over government’s burgeoning expenses vis-a-vis its shrinking revenues, saying the mismatch between the two may be larger than expected if wasteful expenditures are not pruned together with rationalisation in tax structure.

In a pre-budget meeting with Finance Minister Pranab Mukherjee, they suggested measures like cutting the unwarranted subsidies, broadening government’s tax base and bring out some urgent reforms in the markets in order to lift investor sentiment.

More than a dozen economists from private and public sector, who attended the meeting suggested that rising expenditure on government’s populist schemes be reduced and the leakages of funds in implementing them be curbed in order to plug the fiscal deficit close to budgetary target of 4.6 per cent.

Centre’s fiscal deficit or the gap between its revenues and expenses till December has already risen more than 92 per cent of the budgeted estimate for this fiscal and going forward, it is expected to increase by one percentage point to 5.6 per cent of the gross domestic product in 2011-12, according to many economists.

M Govind Rao, Economic Adviser to Prime Minister, who also participated in the meeting, subscribed to the same view. “It looks difficult to curb it at 4.6 per cent. It may reach 5.6 per cent instead,” he told reporters.

He also said the budget should try and improve the falling tax to GDP ratio, which has off late come down to 10 per cent from 12 per cent earlier. One way of expanding tax resources, according to him, would be introduction of negative list of services to have more services in the tax net.

Other suggestions that emerged out of the meeting were roll back of excise and service tax to the pre-2008 level in order to check falling tax revenues.

Economists, including Rajiv Kumar, Ficci Secretary General, suggested reduction in securities transactions tax, levied on equity related instruments, and extend its scope to assets other than equities, such as commodities.

This, they said, would help boost equity volumes and raise government’s revenue and also have a sentimental impact on the markets.

Equity volumes on Indian bourses were one of the worst hit among global peers in 2011. BSE sensex fell close to 25 per cent in the year and investors lost at least Rs 38 trillion.