The government has to think more radically if it is serious about cutting the fiscal deficit when revenue collection is still not robust
There is nothing really new in what Prime Minister Manmohan Singh told an industry gathering on Saturday as he gave an assurance that he intended to reduce the fiscal deficit to 5.3 per cent of GDP this year and bring down inflation.
But hard-headed businessmen and others are more interested in precisely how Dr Singh plans to achieve this. He talked of cutting the subsidy on oil, which he noted outstripped what was spent on health and education. It is well known subsidies add to the fiscal deficit (put simply, the deficit is a reflection of the government spending more than it earns). But how much can he cut oil subsidies? Since July, after Pranab Mukherjee left the finance ministry to become President, there has been much talk about cutting subsidies, yet five months later the government sought another Rs 28,500 crores in subsidies, and got it. At this rate, how does the government plan to cut the deficit to 5.3 per cent by March? By how much can the price of diesel and petrol be hiked? Under-recoveries are estimated at Rs 1,67,415 crores for this fiscal year.
The fiscal deficit is estimated at Rs 5,13,590 crores in the 2012-13 Budget. Raising petrol and diesel prices will get just a drop in this huge deficit ocean. The government has to think more radically if it is serious about cutting the deficit when revenue collection is still not robust. It could start getting its act together to collect billions of crores locked in tax disputes, bad loans and black money spirited away to tax havens. Till today, the government has done very little to curb the generation of black money, which is estimated at over Rs 25 lakh crores. Think of the taxes it would have earned even on half this amount! Or the amount in Swiss banks and other tax haven — how much has the government managed to get back either directly or through taxes? The Prime Minister should address these issues, and keep the nation informed.
Or take Dr Singh’s assurance to businessmen that tax issues affecting the information technology industry would be resolved? What has prevented the government from doing this for over a year now? It has been 17 months since Infosys chairman-emeritus N.R. Narayana Murthy wrote to the Prime Minister on taxation issues related to the IT industry. Mr Narayana Murthy went public about this letter in September this year, but till then the PM had not even bothered to send a reply despite reminders. And now there is only an “assurance” about tackling it. While the Prime Minister’s intentions appear to be genuine, he has to show a lot more realism and transparency in handling the deficit and other critical issues.
Post new comment