A gradual withdrawal of the fiscal stimulus is necessary but lasting gains to the government will accrue via cuts in expenditure. The Economic Survey 2009-10 has pitched for reforms in the design and delivery of Plan schemes and efficiency in spending and institutional reforms.
Estimating the fiscal deficit at 6.5% of the gross domestic product (GDP) in 2009-10, the survey said the government need to take on board the recommendations of the 13th Finance Commission (TFC) for designing a gradual exit strategy.
The TFC has suggested progressive reduction in the revenue deficit of the Centre, that could result in revenue surplus by 2014-15. The Commission has suggested paring the fiscal deficit?which is projected to touch a 16-year high of 6.8% in 2009-10?to 3% by March 2014. The TFC has pegged the fiscal deficit for the next financial year at 5.7% of GDP, while Budget 2009-10 had forecast a 5.5% fiscal deficit in 2010-11.
Finance minister Pranab Mukherjee will unveil the latest numbers on Friday, while presenting Budget 2010-11. ?The government, despite the fiscal strain, has accepted the major recommendations of the Finance Commission keeping in mind the larger interests of the federal policy,? Mukherjee said on Thursday. One may see a shortfall in revenue receipts on account of large decline in indirect taxes like customs and excise and the likely lower-than-budgeted non-tax revenue, the Survey said.
?With some expenditure restrain, it might still be possible to contain the deficit at the expected levels,? it said. The Prime Minister?s Economic Advisory Council too, has asked the government to reduce expenditure as a proportion of GDP by one percentage point in 2010-11.
?For India, the path to fiscal consolidation has typically been a revenue-side exercise because of political economic realities. The Survey, however, points out that cutting wasteful expenditure by the government would also yield results in this direction,? added Religare Capital Markets Ltd chief economist Jay Shankar.
?Two key planks for an improved subsidy system are: the direct transfer of subsidies to the beneficiary, and allowing the targeted group the freedom to choose where they purchase the food/fertiliser from,? Citi India economist Rohini Malkani said. This is possible through use of a coupons system, the efficiency of which, would be enhanced by the implementation of the Unique Identification System.The share of direct taxes in the total tax revenue is projected to rise to 57.7% in 2009-10 (BE), compared with 55.5% in 2008-09, the Survey said. This reflects the fact that excise duty bore the brunt of tax cuts.
