Ad Here  
January
February
March
April
May
June
 
 
Sustainably developing manufacturing sector… Much ado about nothing Focus on southern TN... Babes In the wood-RBI North block has little clue to curb inflation Chennai Airport-Ready for a rapid take off... Star of the South PC please be our Santa Healthy finances of the Chennai Corporation Why throw baby with bath water? An eco-friendly commute in Mysuru You too T M Krishna? Tryst with GST Indian GST – Between extremes… A blueprint for the future Cleansing Indian retail In the horns of a dilemma Trail-blazing Tamil Nadu Truce at Kasturi Buildings When the examiner cheated... Two welcome measures from the chief minister... They add lustre to Padma Awards Weaving wealth of western Tamil Nadu TN - so much to offer... Deming awardees galore! Wanted: decentralised financial system Welcome Measures. Work for 10X Change Make way for Make in India... Babes In the wood-RBI North block has little clue to curb inflation Outward ho Focus on agriculture and human resources CAD and the emergency thereof Skewed Economic Zones? Welcome move to widen the tax net… INDIA keeps its date with destiny Research for survival... Tax evaders’ get out of Jail-Free Card MS Installed Public investments and welfare will surge CSR, tech revolution and bank crisis Technology and economic development should be linked Strategic planning the missing link A dual GST that will protect prosperous states A gratifying record Welcome rains for damaged roads... Sowing seeds of hope An eventful week with VVIPs of Delhi A Fine division of responsibilities South India’s 100 most valuable companies The Great Fall After all, customer is the king Need for radical RBI reform Rail-road Rajaraman Sardar Sarovar – the seventy year itch No groundnuts in groundnut oil! Kudos to GIM organisers... A historic indirect tax reform Land, land everywhere, but... Industry can’t get it from Mars, yet Miles to go... What the big B should offer? Jobs - Lost, Changed or Gained Why (not) abolish? BJP can now hasten its thrust for reforms Well-administered State Oh my GOLD Breaking news or breaking credibility? Ganesh’s mantras Much can be done by us Pool energy prices 1800 parties registered with EC – Less than 60 contest elections Economy through the month Reform this licence to…kill Policy Makers It’s raining funds for states. Really? Need plan over the long term planning A tale of two Bihar babus If not Tamil Nadu, where else? Low profile moves The deluge and the several kindly souls How will it PAN OUT Little surplus after salaries, subsidies and debt servicing Better relations with UK...
 
How will it PAN OUT
IE: Since this year’s budget will be the one before general elections it would be a populist one. What are your suggestions on this?
Gaurav Kapur is the Senior Economist of RBS.
Gaurav Kapur (GK): The budget may not be a populist one considering that fiscal consolidation is crucial for supporting growth, controlling inflation and avoiding a sovereign ratings downgrade. Recent efforts by the government to keep its fiscal deficit within the 5.3 per cent of GDP target, especially by curbing subsidies and ensuring proper administration through direct cash transfers, suggest that the Central government is committed to keeping the fiscal slippage under control. Moreover a large part of government spending is non-discretionary in nature and hence discretionary spending on popular welfare programmes would have to be limited. The government in this budget may however, try and balance an increase in spending on social welfare schemes of populist nature with reduction in subsidies and better targeting.
  A mechanism to control subsidies via automatic or partial price adjustments should be put in place to avoid any ambiguity and to reduce the subsidies bill. On the tax side, any efforts to move towards the Goods and Services Tax (GST) regime would be welcome, though a complete implementation looks difficult at this stage. And, with the government deferring the implementation of GAAR until April 2016, the uncertainty on this front has been reduced. The government through the national budget should continue to focus on the development of the infrastructure, reviving investments and strengthen the financial sector to channelise long-term savings into this sector.

IE: The UPA has been laying stress on food security and cash transfer for subsidies under the Aadhar scheme. What are your comments on the best manner of ensuring their efficacy?
GK: Food security is a major challenge particularly as food inflation has been on the rise in recent years. With rising income levels and changing consumption patterns, there has been a steady increase in the demand for food without an adequate response in terms of supply, thereby creating sharp upward price pressure. While inflation in protein-rich food categories has been higher compared to other food categories, (an indication of rising income levels), the challenge of food security now is focused more on the poor. The direct cash transfer of subsidies using the UID scheme can be a major game changing reform towards achieving that. In fact Aadhaar can also be effectively used for promoting financial inclusion. Implementation of the direct cash transfer scheme on a national scale would, however, be challenging especially as identifying the target population at the state level would be difficult. Therefore, proper identification of intended beneficiaries is crucial.

IE: Containing deficits has been a major concern. Your suggestions in tackling this.
GK: For tackling the deficit, efforts will have to be made to boost both tax revenues as well as to control spending by curbing subsidies. On the taxation side, India’s tax-to-GDP ratio at 12 per cent is among the lowest in its peer group countries, pointing to problems in administration and a complicated tax code. The government should, therefore, look to implement both GST and DTC, in order to fine-tune the taxation structure, to make the taxation system more progressive and equitable and reduce the over-reliance on indirect taxes. The objective should be simplification of the tax code and moderation in tax rates while removing exemptions in order to increase overall tax collections.
  On the expenditure side, there is a need to set up a mechanism for curbing subsidies, especially those related to crude oil by instituting automatic adjustment of administered fuel prices in line with the global crude oil prices. This would make it easier for consumers to absorb price changes particularly during times of rising crude prices. Price adjustments could remain partial in nature, but should be based on a formula that allows for a rule-based adjustment.

IE: Inflation is another area of concern. Food inflation is assuming serious proportions. Please suggest specific measures.
GK: To effectively curb inflation, measures need to be taken to remove the supply side bottlenecks in the infrastructure and the farm sectors. In the farm sector a national level strategy needs to be devised to increase productivity, especially of protein-rich foods, reducing the number of middle men between the end consumer and the farmer, investing in developing the irrigation and storage infrastructure and developing the food processing sector. At the macro-level, curbing fiscal deficit would also have a beneficial impact on inflation. Considering that India’s economy relies heavily on imported crude oil, pricing of fuel products has to be more responsive to global crude oil price movements. While this may increase inflation in the near-term, in the medium-term such a policy would ensure that consumption gets rationalised. A weaker rupee has added to the inflationary pressures, and, therefore, curbing the current account deficit and attracting greater capital inflows of stable nature, is also crucial to curb inflation in a sustained manner.

IE: The first year of the Twelfth Plan would be over by March. Is the plan off the ground? Is the budget support adequate for the ambitious targets set?
GK: It is difficult to say how much progress has been made in the first year. However, experience from the 10th and 11th Plan suggests that implementation improves towards the latter part of a Plan. Plan targets always tend to be ambitious; however, objectives set, especially in case of the infrastructure sector, and in particular the power sector have proved to be a useful guide post for enhancing capacities in the economy. Budget support to the Plan also tends to increase in the latter years of the plan. It is, therefore, difficult to assess budgetary support to the 12th Plan in the first year, particularly as the government is trying to curb its fiscal deficit. Besides, budgetary support to the Plan is not the only source of funding, as internal and extra budgetary resources (IEBR) are also key sources of Central assistance to the five-year plan. IEBR is an important part of the Central plan of the Government of India and constitutes the resources raised by the PSUs through profits, loans and equity. This source of funding provided close to 45 per cent of the total central plan outlay in the last two fiscal years.

IE: The finances of several state governments are in bad shape. Do you anticipate any special relief from the budget to provide succour to these?
GK: Given the stress the government is facing on its finances on account of higher subsidies, it is unlikely that the government would provide special relief packages for states. Also considering that State Electricity Boards debt and their losses are a major source of fiscal drag for most states, the Central government’s debt restructuring package for Rs.1900 billion worth of SEB debt, announced in September last year, would help manage the pressure on the finances of the states.
Author :
Reported On :
Sector :
RELATED NEWS
ABOUT IE
IE, the business magazine from south was launched in 1968 and pioneered business journalism in south. Through the 45 years IE has been focusing on well-presented and well-researched articles. When giants in the industry stumbled to keep pace with the digital revolution, IE stayed affixed embracing technology.
Read more
 
PRIVACY POLICY
Economist Communications Ltd is committed to ensuring that your privacy is protected.
Read more
TERMS AND CONDITIONS
You agree that your use of this Website and the purchase of the magazine will be governed by these terms and conditions.
Read more
 
CONTACT US
S-15, Industrial Estate,
Guindy,
Chennai - 600 032.
PHONE: +91 44 22501236
EMAIL: indecom1968@gmail.com