1. CEA for wider tax base, better quality spending in FY17

CEA for wider tax base, better quality spending in FY17

Expanding the tax base has to be the central medium-term objective as we have such few taxpayers relative to voters, said Arvind Subramanian, Chief Economic Adviser

By: | New Delhi | Published: December 23, 2015 1:21 AM
Arvind Subramanian

Arvind Subramanian also said that if the quality of expenditure achieved this year could be improved further next year, then it could add to the case flagged in his recent Mid-Year Economic Analysis report for re-assessing the FY17 fiscal consolidation target. (PTI)

Nominal GDP growth in the next fiscal “might not be significantly greater” than the sharply reduced estimate of 8.2% for the current year, the government’s chief economic adviser, Arvind Subramanian, told FE on Monday, citing conjectures that oil could touch even $20 a barrel.

Asked whether a resultant tapering of tax buoyancy would necessitate tax rate increases, he rather stressed expanding the tax base as the central medium-term policy objective, but indicated that many commodities that are currently taxed at lower rates could come under standard rates. “The real deal is to have more taxpayers,” he asserted in an interview, pointedly referring to personal income tax.

Subramanian also said that if the quality of expenditure achieved this year could be improved further next year, then it could add to the case flagged in his recent Mid-Year Economic Analysis report for re-assessing the FY17 fiscal consolidation target.

Asked about the practicality of reducing the subsidy on urea in FY17, which is key to curbing growth in revenue expenditure, he said the quality of government spending involved “more public (capital) investment and (lower) subsidy and finding more room for (achieving) both.”

“Certainly, all these things should be on the table in the course of the next Budget discussion,” he said.
Describing the direct benefit transfer (DBT) scheme for LPG subsidy a success, (it allowed savings of about R15,000 crore in FY15), he said the DBT programmes for kerosene and food, which is fraught with different issues like states being the implementers, ought to be accorded top priority.

The coming Budget, he hinted, would give a boost to the agriculture sector. “We need to focus on agriculture, both to raise productivity and to cushion people against any downside (from farm-sector crises).”

Helped by better performance in livestock products, forestry and fisheries, the gross value addition in the agriculture and allied sectors grew 2% in the first half of FY16. “Latest data for the rabi season suggests that net sown area is lower than for the same period of last year; this combined with likely adverse productivity effects from four consecutive seasons of weak rainfall create downside risks to agricultural production for this fiscal year,” the mid-year report said.

The CEA reiterated that this year’s fiscal deficit target of 3.9% of GDP would be achieved without significant expenditure cuts. “There is always a bit of natural slack in the system (when it comes to spending the budgeted amounts) but you won’t have anything like a draconian cut (as witnessed in recent years),” he said.

Last year, the Centre had to compress expenditure by Rs 1.5 lakh crore from the budgeted level to reduce the fiscal deficit to 4%. It had cut expenditure by Rs 1 lakh crore in FY14.In the mid-year report, the CEA and his team in the finance ministry had said that for India to move rapidly to a medium-term growth trajectory, supply-side reforms – which would help engender private investment cycle — and demand management would be essential.

“On aggregate demand, both fiscal and monetary policy stances will need to be carefully re-assessed, to ensure they strike the appropriate balance between the short-term need to sour demand, especially private investment and exports, and the longer-term needs of preserving fundamental macroeconomic stability.”

The mid-year report revised the real GDP growth estimate for the current fiscal by a percentage point to 7-7.5% and the forecast of nominal GDP expansion even more sharply, from 11.5% to 8.2%. Though economic recovery was underway, it largely hinged on private consumption and government investment and mixed signals emanated from various sectors.

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