Govt calls for fiscal prudence, fiscal deficit kept at 4.1%

Tax-to-GDP ratio and non-tax revenues to be improved: FM

 In spite of weak revenue collection and enlarged subsidies, Finance Minister Arun Jaitley’s Budget proposed to keep the fiscal deficit at 4.1 per cent as suggested in the interim budget.

“My predecessor has set up a very difficult task of reducing fiscal deficit to 4.1 per cent of the GDP in the current year. Considering that we had two years of lower GDP growth, a moderate increase in indirect taxes, a large subsidy burden and so encouraging tax buoyancy, the target of 4.1 is indeed daunting… I have decided to accept the target as a challenge,” Jaitley said in Parliament presenting the Budget for 2014-15.

He also said that the roadmap for fiscal consolidation was a fiscal deficit of 3.6 per cent for 2015-16 and 3 per cent for 2016-17. “We need to introduce that will lead to fiscal consolidation and discipline. Fiscal prudence to me of paramount importance because of considerations of inter-generational equity. We cannot leave behind a legacy of debt for our future generations,” he said. The minister also emphasised on improving the tax to GDP ratio and non-tax revenues. Critical of the previous UPA regime on the way it tried to reduce fiscal deficit in the past, Jaitley said, “it was mainly achieved by reduction in expenditure rather than by way of realisation of higher revenue.

Former finance minister P Chidambaram reacted by saying Jaitley acknowledged the basic validity of the numbers presented by him in the Interim Budget for 2014-15 in February. The "imprint of the UPA government's policies" on fiscal consolidation, GST, FDI cap in insurance and social sector schemes, Chidambaram said, can be found throughout the Budget speech of Jaitley and in the Budget documents.

Instill confidence  Finance Secretary Arvind Mayaram on Thursday said measures announced in the Budget would instill confidence among investors and bring back economic growth.“Going forward we are expecting growth to come back with the measures which has been announced by the Finance Minister. The growth should comeback into the economy and with that there will be tax buoyancy,” Mayaram told reporters outside the Parliament.

Noting that the tax targets announced by the Finance Minister are not ambitious, Mayaram said there would be tax buoyancy. “Tax targets are not ambitious because if you look at the numbers that we are looking at, our estimation is that the growth is more than 5 per cent- nearing 5.6 per cent to 5.7 per cent, then there will be tax buoyancy,” Mayaram said.

When asked whether corporates would be disappointed on retrospective tax issue, Mayaram said that safeguards have already been put in place to ensure that there is no harassment. “I think this is the first time such a mechanism has been put in place, the committee will have to look at it. It is a huge step forward and this will instill confidence in the investors,” the Finance Secretary said.

In his maiden Budget speech, Finance Minister Arun Jaitley, said that the government has decided that all fresh cases arising out of the retrospective amendments of 2012 in respect of indirect transfers and coming to the notice of the assessing officers will be scrutinised by a high level committee.

The committee, to set up by CBDT, would look into such cases before initiating any action.]
“I hope that investor community, both within India and abroad would repose confidence on our stated position and participate in the Indian growth story with renewed vigour,” Jaitley said.

On recapitalisation of public sector banks, Mayaram said the measures announced in this regard would provide a big push for the banking sector. Budget has set aside Rs 11,200 crore for PSU bank recapitalisation. “We need to strengthen the banking system to provide the necessary finance for growth and for investment to go forward. I think the measures announced today are path breaking announcements and we will see going forward the banking system will have a resurgence,” he said.