Continuity of fiscal reforms crucial
The 2013-14 Union Budget is expected to provide much-needed impetus to growth by accelerating investment and continuing popular policies while not loosening fiscal discipline. We expect this budget to introduce a roadmap of further fiscal discipline and to focus on increasing government resources, though not at the risk of hampering a recovery in growth. We expect growth to improve in the second half of the year, which should enable policymakers to introduce a slew of policies designed to appeal to the electorate.
Maintaining the pace of measures announced over the last five months to contain the fiscal deficit, we expect further reductions in unplanned expenditure. The key towards achieving this would be a roadmap for expanding the ambitious programme of direct cash subsidy transfers from currently 10% of districts to 40-50% of districts. This scheme directly credits the bank accounts of verified beneficiaries, with the aim of plugging systemic leakages in social spending schemes, thereby helping reduce the fiscal deficit.
To boost government resources, the finance minister could expand the tax base or raise tax rates. Given the state of the economy, however, raising tax rates is unlikely as it would hamper growth. Expanding the tax net has been under consideration for a while and appears the more likely option. While most hurdles have been overcome to allow implementation of the Goods and Services Tax and direct taxes code, there is unlikely to be enough time to enact
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