‘Fiscal deficit could reach 5.5% despite reforms’

Tax arrears currently amount to more than Rs 2 lakh crore.

Written by Surabhi | New Delhi | Published:October 17, 2012 1:26 am

The government needs to build on its efforts to plug the fiscal gap by way of additional steps to augment its revenues,including mining data on high value transactions and considering out of court settlement of tax cases,according to M Govinda Rao,director of the National Institute of Public Finance and Policy (NIPFP).

Rao,who is a member of the Prime Minister’s Economic Advisory Council,warned that the Centre’s fiscal deficit could end up at around 5.5 per cent of the GDP,despite expectations that reforms aimed at easing the subsidy burden would help contain it.

“The government can do two to three things to fix the deficit. While they are already working on disinvestment of public sector firms and spectrum auction,they can consider mining data available with the NSDL,” he told The Indian Express.

Pointing out that the country’s largest depository NSDL has ‘whorls’ of data on transactions by PAN holders,Rao said that tax authorities should track high value transactions with the help of private agencies.

“It will do wonders for the tax authorities in getting revenue and will also improve monetary compliance,” he said. “In order to finance the deficit,the government should also consider out of court settlement of tax cases.”

Tax arrears currently amount to more than Rs 2 lakh crore. “The government should declare that all the cases that are pending with the courts should be negotiated and settled out of court,” Rao said.

It will not seek any penalty or interest but just the tax demand,the public finance expert said,adding that even if just Rs 50,000 crore is made available,it would help the deficit.

The Supreme Court had also recently raised the issue and directed the finance and law ministries to plug loopholes in government’s litigation machinery so that the court cases with over Rs 59,000 crore in tax demands can be disposed off quickly.

The Centre has pegged its fiscal deficit for 2012-13 at 5.1 per cent of the deficit but a high level panel led by former finance secretary Vijay Kelkar recently said that it is hanging on the edge of a ‘fiscal precipice’ and the deficit could touch 6.1 per cent in the current financial year.

It had suggested that the government should undertake far reaching reforms such as freeing diesel and LPG prices and monetising land with PSUs to contain the fiscal deficit at 5.2 per cent.

However,Rao contended that the reforms would take time and the deficit would be higher than this figure.

“I expect that they will contain the fiscal deficit at 5.5 per cent. This will keep the credit rating agencies happy. They will postpone part of the problem till the next year by not paying under recoveries to oil marketing companies till first quarter of next fiscal,” he said.

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