Fiscal consolidation must: FinMin

Sep 07 2012, 21:20 IST
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SummaryFiscal deficit during 2011-12 was 5.8% of the GDP, up from 4.9% a yr ago.

Making a strong case for corrective action to bring down fiscal deficit, a finance ministry document today said it is essential to achieve macro-economic stability.

"The challenge before the government lies in ...(taking) corrective action to come back to the path of fiscal consolidation", said the statement on 'Quarterly Review of the Trends and Receipts' tabled in the Lok Sabha by Minister of State for Finance S S Palanimanickam.

According to the statement, fiscal consolidation would be "extremely essential from the point of view of macro-economic stability and fiscal sustainability."

The fiscal deficit during 2011-12 was 5.8 per cent of the Gross Domestic Product (GDP), up from 4.9 per cent a year ago.

The government proposes to bring it down to 5.1 per cent in the current fiscal, but the task seems difficult in view of rising subsidy bill and poor progress on the disinvestment front.

The Review, which was tabled in Parliament in pursuance of the Fiscal Responsibility and Management Act, said the uncertainty in the economic situation worked against and the growth rates slowed during the second half of the fiscal leading to reduction in tax receipts.

On the expenditure side, high oil and commodity prices in international pushed up fuel and fertiliser subsidy bills.

These developments, it added, adversely impacted the fiscal situation.

It also called for improvement in the tax-GDP ratio which declined from 10.1 per cent in 2010-11 to 10.1 per cent in 2011-12.

The Finance Ministry had recently sought help of tax experts including former Finance Secretary Vijay Kelkar to suggest a road map for fiscal consolidation. The committee recently submitted its report to the Ministry.

The Quarterly Review, however, took comfort from buoyancy in direct tax collection in 2011-12. "...the buoyancy in personal income tax goes to show that the rationalisation of the slabs and moderation in tax rates aid in improving tax collection."

It attributed the shortfall in corporate tax collection in 2011-12 primarily to the economic slowdown in the second half of the fiscal and especially in January-March quarter that impacted the profitability and low business expectations.

On the expenditure side, the review said, "while sectors like education, agriculture, finance, road transport, women and child development and railways utilised their budget allocations, savings were witnessed in areas like home affairs, power, health and family welfare, information technology and atomic energy."

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