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Why (not) abolish? Deming awardees galore! Tax evaders’ get out of Jail-Free Card You too T M Krishna? They add lustre to Padma Awards A Fine division of responsibilities Much ado about nothing Breaking news or breaking credibility? Little surplus after salaries, subsidies and debt servicing Strategic planning the missing link Sowing seeds of hope A blueprint for the future Sustainably developing manufacturing sector… Research for survival... Well-administered State 1800 parties registered with EC – Less than 60 contest elections Chennai Airport-Ready for a rapid take off... An eventful week with VVIPs of Delhi BJP can now hasten its thrust for reforms Better relations with UK... A historic indirect tax reform Focus on agriculture and human resources Much can be done by us Land, land everywhere, but... Industry can’t get it from Mars, yet Focus on southern TN... Healthy finances of the Chennai Corporation MS Installed Sardar Sarovar – the seventy year itch Trail-blazing Tamil Nadu Welcome move to widen the tax net… How will it PAN OUT Outward ho Truce at Kasturi Buildings What the big B should offer? INDIA keeps its date with destiny PC please be our Santa A dual GST that will protect prosperous states Make way for Make in India... An eco-friendly commute in Mysuru Skewed Economic Zones? Wanted: decentralised financial system No groundnuts in groundnut oil! Economy through the month Need plan over the long term planning Low profile moves Technology and economic development should be linked Why throw baby with bath water? Kudos to GIM organisers... A tale of two Bihar babus If not Tamil Nadu, where else? After all, customer is the king Pool energy prices Welcome rains for damaged roads... Public investments and welfare will surge Indian GST – Between extremes… CAD and the emergency thereof Need for radical RBI reform Rail-road Rajaraman Jobs - Lost, Changed or Gained Babes In the wood-RBI North block has little clue to curb inflation A gratifying record Oh my GOLD Policy Makers The Great Fall It’s raining funds for states. Really? South India’s 100 most valuable companies Miles to go... Ganesh’s mantras Tryst with GST Weaving wealth of western Tamil Nadu Star of the South In the horns of a dilemma Cleansing Indian retail When the examiner cheated... Two welcome measures from the chief minister... Babes In the wood-RBI North block has little clue to curb inflation Reform this licence to…kill The deluge and the several kindly souls Welcome Measures. Work for 10X Change TN - so much to offer... CSR, tech revolution and bank crisis
 
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.
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