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Facing a twin challenge
- Growth will be lower and inflation higher than the projection when the current year budget isformulated.
- Gross domestic product (GDP) growth was 6.9 per cent in the second quarter ended September and is expected to be 7.3 per cent for the current fiscal year.
- Inflation stood at 9.73 per cent in October with food inflation at 8 per cent during the week ended November 19.
- The trade deficit was $19.6 billion and it might break the $150-billion mark in the current fiscal.
- Tax cuts are part of fiscal stimulus.
- The reduction in direct taxes such as income-tax need not always result in more spending by the beneficiary and may end up in more savings.
- Cut in excise duties, sales tax and service tax is usually done to lower the prices of the commodities and services and stimulate demand and growth.
- Reforms in tax laws such as Goods and Services Tax (GST) and Direct Taxes Code have to be expedited.
- On the expenditure front, identification of priorities is the top-most priority.
- Reordering of priorities should concentrate on development expenditure such as improving agricultural productivity, public health and education, an investment in future assets.
- Spending of public funds for stimulating growth and tackling inflation should be on asset creation in vital sectors such as infrastructure, agriculture, power generation and distribution, roadways, railway capacity and telecommunication.
- Maintenance of physical assets already created needs special attention.
- Full subsidy is not always reflected in the budget, for example, part of petroleum borne by upstream oil companies.
- Subsidy reduction is done through increase in prices and not by efforts to reduce the cost of providing the commodity or service.
- Output and outcome budgeting with a proper follow-up action will help achieve the desired results from expenditure, especially in infrastructure projects with public private partnership.
- The current year Railway budget revealed a dismal picture of unacceptable percentage of operating cost to revenue.
- A performance audit of fiscal stimulus package in the coming budget will be necessary to assess how far the target of growth with controlled inflation is successful.
