India needs a correct fiscal plan

The Central government's budgetary fiscal deficit has surged nearly twice to 2.70-lakh crore during the first five months of the current financial year (April-August 2011-12 from Rs.1.50-lakh crore in the corresponding period last year. In the earlier times, government borrowings were treated as part of receipts. In the budget for 1984-85, total receipts were estimated at Rs.40,501 crore, including market loans of Rs.4,100 crore, and total expenditure at Rs.42,536 crore with an uncovered deficit of Rs.2,035 crore (Rs.1,762 crore after taking into account the effect of new taxation proposals). But numerous problems still remain in arriving at the correct figure of fiscal deficit and drawing up a credible fiscal plan. This has assumed special importance now when we are grappling with inflation, slower economic growth and volatility in the world economy. Excessive government borrowings put the Reserve Bank of India in a difficult position with no option but to raise interest rates frequently to control money supply and inflation without slowing growth. If any fiscal stimulus is envisaged the details of tax concessions and specific expenditure schemes in the stimulus package have to be highlighted along with expected outcomes. The actual outcomes of the last fiscal stimulus package done, including the loan waiver of Rs,70,000 crore, should be indicated.

The revenue in the first six months of this financial year is reported to be behind budget estimates due to slower economic growth. Disinvestment has been a non starter in the current financial year due to market volatility (budget estimate of Rs.40,000 crore from this source). With no lack of innumerable studies and task force reports what is needed is action to implement broad-based fiscal reform.