Five-year Fiscal Consolidation Plan


 The Union Finance Minister  on October 29,2013 spelled out a five-year plan to cut fiscal deficit of India from an expected 5.3 percent in the 2013-14 fiscal to three percent by 2017. According to the minister, the government has accepted the Kelkar Committee's recommendations aimed at containing fiscal deficit. The process to contain the deficit will include the usage of unique identity number - Aadhaar - to distribute subsidies to the below poverty line population, thereby plugging leakages.
The Report of the Kelkar Committee
The Kelkar Committee cautioned that a business-as-usual scenario for the current year may lead to the fiscal deficit rising to 6.1 per cent of GDP.  This would have grave consequences for the economy is, therefore, totally unacceptable.  The Committee has recommended a number of reform measures in taxation, disinvestment and expenditure.  On the taxation side, the Committee has strongly advocated a transition to the Goods and Services Tax (GST) and a quick review of the Direct Taxes Code (DTC) before its introduction and passing in Parliament.  Besides, the Committee has recommended administrative measures to improve tax collection.         On disinvestment, the Committee has suggested a number of new models for disinvestment and has also urged Government to disinvest its residual stake in some companies that were privatised earlier.  On the expenditure side, the Committee has suggested rationalisation of schemes and strict control and monitoring of expenditure.  These recommendations are wholesome and have been accepted by the Government. 
The Fiscal Consolidation Plan
As regards the fiscal deficit (FD), taking into account the steps outlined above and other steps that are being implemented or contemplated, Government has decided to adopt the following plan of fiscal consolidation during the period of the 12th Plan, i.e. from 2012-13 to 2016-17. Fiscal deficit targets are 5.3 per cent, 4.8 per cent, 4.2 per cent, 3.6 per cent, and 3.0 per cent in 2012-13, 2013-14, 2014-15,  2015-16, and 2016-17 respectively.
The burden of fiscal correction must be shared, fairly and equitably, by different classes of stakeholders.  However, the poor must be protected and others must bear their fair share of the burden.  In particular, all the flagship programmes designed to help the poor and bring about inclusive development will be fully protected under the revised fiscal consolidation plan.   As fiscal consolidation takes place and investors’ confidence increases, it is expected that the economy will return to the path of high investment, higher growth, lower inflation and long term sustainability. 
Action Taken by Government
The Department of Revenue and the Department of Expenditure have initiated action on the recommendations of the Committee.  The Department of Disinvestment has obtained approval of the Cabinet for disinvestment in Hindustan Copper Ltd., NALCO, SAIL, RINL, BHEL, OIL, MMTC and NMDC.  Government expects to realise the budgeted receipts under ‘disinvestment’ and ‘non-tax receipts’.  Every effort will also be made to realise the revenues budgeted under ‘tax receipts’.  Government also expects to be able to contain and economise on expenditure, both on the Plan and the non-Plan side.  While funds will be made available for essential expenditure, especially capital expenditure, every effort will be made to avoid parking or idling of funds.  As regards subsidies, Government will also increasingly rely on Aadhaar-enabled direct cash transfers of merit subsidies to eliminate duplication or falsification.

Friday, 18th Oct 2013, 07:10:31 AM

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