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| Govt stares at Rs 1 lakh crore tax deficit, but may hike spend to boost growth | | | Early Times Report
NEW DELHI, Dec 21: The government acknowledged that it is staring at a potential revenue shortfall of over Rs 1 lakh crore this fiscal year and indicated that some expenditure reduction may be undertaken to stick to the fiscal deficit target of 4.1% of gross domestic product (GDP).
There were sugsgestions in the Mid-Year Economic Analysis of the government stepping up public investment, at least in the coming years, to get the economy back on rails at a time when stressed corporate balance sheets may not be able to support investment in large projects, critical for faster growth and job generation.
"To revive growth going forward, public investment may have to play a greater role to complement and crowd-in private investment... Consideration should be given to pursuing counter-structural fiscal policy as a way of reviving growth and to finding the fiscal space to finance such investment," chief economic adviser Arvind Subramanian told a press conference after the 143-page document was tabled in Parliament.
At the same time, he made a distinction between higher public spending, undertaken during Pranab Mukherjee's term, and more public investment, being suggested by him, that will result in capacity addition in sectors such as power and roads. He said the government could find resources through better expenditure management, higher revenue mop-up or even through more borrowings from the market.
The statement came along with a suggestion to review the public-private partnership model, which was seen as the key mode to run infrastructure projects during UPA's 10-year term at the Centre.
Subramanian — an economist who has spent a large part of his working career in the US and joined finance minister Arun Jaitely's team a few months ago — suggested that higher public investment will also mean a review of all the spending, revenue and deficit targets that the government had set earlier.
For long the government has focused on staying within a fiscal deficit zone of 3%, a target fixed during UPA's tenure. Subramanian's suggestions would mean reworking the strategy, at least in the short- to medium term as growth has been slow to pick up. The statement also comes at a time when the 14th Finance Commission, which submitted its report last week, is looking at the Fiscal Responsibility and Budget Management law and the targets.
For the current year, however, Subramanian did not comment on the sectors that will see spending reduction but suggested that there were several heads where expenditure had not taken place.
In other words, the government may be look at showing lower expenditure when it tables the revised estimates with the budget, thanks due to savings as ministries could not spend the allocated funds.
The report made a break from the past and tried to estimate why the targets, which Jaitley retained from his predecessor P Chidambaram and admitted were ambitious, will not be met.
The Mid-Term Analysis revealed that moderate inflation, which is good news for households, has contributed around Rs 27,000 crore to the projected shortfall. Similarly, the estimated tax buoyancy in the economy did not materialize and the unpaid refunds only compounded the problem for the NDA government. |
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