Rein in inflation, cut the fisc: Survey

The annual state of the economy report — Economic Survey 2003-04 — has called for immediate steps to curb inflation, which in turn...

The annual state of the economy report — Economic Survey 2003-04 — has called for immediate steps to curb inflation, which in turn can put pressure on interest rates. Making a strong case for fiscal consolidation to check the fiscal deficit of the government, the Survey has stated that “interest rates should remain at a lower level for a number of years. With fiscal deficit remaining high and signs of pick up of credit to the commercial sector, the possibility of interest rates moving northwards cannot be ruled out”.

While lauding the centre for enacting fiscal responsibility and Budget management act, the survey warned that “the unobserved cost of fiscal deterioration is the growth foregone. To sustain the present growth momentum, it is essential that renewed efforts are made for fiscal consolidation.”

In fact, going by the data of the Survey, tax revenues have not gone up substantially in the year 2003-04 as compared to the previous year. While total tax revenue went up from 8.8 per cent of GDP in 2002-03 to 9.2 per cent of GDP in 2003-04, indirect taxes for the year remained same as that in 2002-03 at 5.3 per cent of GDP. The provisional estimates of indirect taxes in fact fell short of the budget estimates mainly due to shortfall in excise collections.

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The Survey has also stated that fiscal deterioration was mainly on account of higher levels of expenditure on salaries, unfunded pensions, mounting interest payments, improperly targeted subsidies and decline in tax-GDP ratio. “The deterioration of the fiscal situation has not shown up in a crisis so far. But the continuation of the present fiscal situation is likely to adversely affect the macro economic situation,” the Survey warned.

To improve tax-GDP ratio, the Survey said “there is a clear need to overhaul the regime of exemptions, reduce the number of notifications, simplify procedures and move towards a paperless and transparent administration anchored on trust.” The survey also favoured better-targeting of subsidies as expenditure on major subsidies has increased in nominal terms from Rs 9,581 crore in 1990-91 to Rs 40,416 crore in 2002-03, and further to Rs 48,636 crore in 2003-04. The Survey further stated that the burden of fiscal adjustment has to be borne by both the Centre and the States.

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