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Reduce the income gap

The solution doesn’t lie in more sops, fiscal incentives and so on. There is need for change in the way our industrialists do business and netas and babus conduct themselves Successive Governments have remained obsessed with accelerating economic growth without caring about how it impacts income distribution, forget any attempt to internalise this crucial aspect in development strategies. They believe that the fruits of growth will automatically percolate to the lowest strata of society. Nothing could be farther from the truth. This is evident from a piece of research, Time to Care, released by rights group Oxfam ahead of the 50th Annual Meeting of the World Economic Forum (WEF) held in Davos (Switzerland) from January 21-24. According to the study, India’s richest one...
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Freebies: Why it is a road to fiscal disaster

Freebies provided by state governments need to consider the fiscal burden they will lead to, and must not be used to woo voters.   AK has literally mesmerised Delhi voters by promising free/heavily subsidised electricity—24×7—and free water. —————————————————- In the just concluded elections in Delhi, the electorate has returned Arvind Kejriwal (AK) to the coveted position of chief minister with a thumping majority with Aam Aadmi Party (AAP), winning 62 out of a total of 70 assembly seats.  AK has literally mesmerised Delhi voters by promising free/heavily subsidised electricity—24×7—and free water, besides several add-ons such as free bus ride for women, free Wi-Fi, full reimbursement of hospitalisation expenses in case of accident on an actuals basis, free testing and diagnostic services—if the facility is...
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Amnesty schemes cannot help fill the void in tax collection

While presenting the Budget for 2019-20, Finance Minister Nirmala Sitharaman had set gross tax receipts (GTR) target of about Rs 24.6 lakh crore. In the Budget for 2020-21, the revised estimate [RE] for 2019-20 at Rs 21.6 lakh crore is short by a whopping Rs 3 lakh crore. In direct taxes alone, the shortfall is Rs 1.6 lakh crore, the RE being Rs 11.7 lakh crore against the budget estimate [BE] of Rs 13.3 lakh crore. For 2020-21, the FM has set the GTR target of Rs 24.23 lakh crore – an increase of Rs 2.63 lakh crore over the RE for 2019-20. The direct tax target is Rs 13.19 lakh crore, an increase of Rs 1.49 lakh crore over the...
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Make your choice

If demand doesn’t improve, firms might retain the tax cut bonanza instead of investing. It would’ve been better to put more cash in the pockets of individuals by giving more IT relief Amid an atmosphere of gloom and doom (triggered by growth plunging to a low of less than five per cent during the current year and muted projections for next year), it is necessary to closely scrutinise tax proposals in the Union Budget for 2020-21 to assess whether or not these will generate the much-needed growth impulses. The four major factors impinging on a surge are private consumption, investment, export and spending by the State. The Modi Government has kept up the tempo of expenditure by way of building infrastructure and...
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Not so strategic disinvestment

Unless there is an economic turnaround and the bureaucratic machinery moves with alacrity to make preparations for conducting PSU sales, the Govt will not reach the Rs 2,10,000 crore target Buoyed by the success of disinvestment in  Public Sector Undertakings (PSU) during 2017-18 and 2018-19 (when the Centre garnered over Rs 100,000 crore and Rs 85,000 crore respectively), for the current year, the Modi Government had set an ambitious target of getting Rs 1,05,000 crore. A major slice of these proceeds was to come from “strategic disinvestment” or transfer of a sizeable portion of ownership (this could go up to 51 per cent, implying privatisation) and management control to a private entity. The crucial “strategic disinvestment” proposals included divestment of all of...
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Economic Survey 2020: Fudging food and fertiliser subsidy

Far from subsidy allocations coming down, as the Economic Survey had recommended, there is significant increase not reflected in govt balance sheets   Economic Survey 2020: The food subsidy figure mentioned in the budget are reimbursements to FCI, and other state agencies engaged in similar operations on behalf of the Union. —————————————————————————————————– Economic Survey 2020: In the 2020 Economic Survey, released on January 31, the chief economic advisor (CEA), K Subramanian had recommended some reduction in food subsidy by limiting the scheme’s coverage, and increasing the issue price of foodgrains. One was, therefore, looking forward to announcement of a major reform in this regard in the Union Budget for FY21 presented by finance minister Nirmala Sitharaman the following day. While the speech...
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FM promised truth, but the Budget lies on fiscal deficit

Finance Minister Nirmala Sitharaman’s Budget confirms the apprehension that the actual fiscal deficit for 2019-20 would exceed the budget estimate (BE) by a significant margin. Sitharaman put it at 3.8% of GDP against the targeted 3.3%. She justified this saying that  the recommendation of the NK Singh committee on review of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, permitting breaching of the target in case of “far reaching structural reforms with unanticipated fiscal implications.” For 2020-21, she has put BE at 3.5% against the 3% required under the FRBM Act and offered the same explanation for this deviation, too. Despite the significant slippage (every 0.1% variation translates to extra borrowings of close to Rs 20,000 crore), the government’s...
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Long on vision, short on means

The credibility of the fiscal consolidation glide path has been dented which is also reflected in the Sensex falling by over 1,000 points after the Budget announcements The Union Budget for 2020-21 presented to the Parliament by Finance Minister (FM) Nirmala Sitharaman on February 1 confirms apprehensions that the actual fiscal deficit (FD) for 2019-20 would exceed the Budget Estimate (BE) by a significant margin. Sitharaman puts it at 3.8 per cent of the GDP against the target of 3.3 per cent. However, she has justified this deviation in terms of the recommendation of the NK Singh Committee on review of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 which permits breach of the target in case of “far-reaching structural reforms...
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Can invisible hand work?

Seen from an economist’s perspective, the Economic Survey looks eloquent. But  execution could run into a logjam as politicians are prone to controlling the consumer The Economic Survey for 2019-20 has been prepared by the Chief Economic Advisor, Dr K Subramanian, keeping the ambitious target of achieving the $ 5 trillion economy status by 2024-25, set by Prime Minister  Narendra Modi, at its centre. The rigorous analysis (a lot of it involves running of “regression equations” — a euphemism in econometric analysis to bring out correlation between various economic parameters) done by the CEA has to be seen in the backdrop of deceleration in the GDP (gross domestic product) growth to its 11-year-low of five per cent during the current year (first...
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Why half-baked fertilizer reforms won’t deliver

If the government wants to restrict subsidised supply only to small and marginal farmers having landholding size <2 hectares, this will require two streams of supplies in the distribution channels viz.   The Union government controls the maximum retail price (MRP) of urea at a low level, unrelated to the cost of production and distribution, which is much higher. —————————————————————————————————— Reportedly, the government is likely to fix nutrient-based subsidy (NBS) rate for urea before rolling out the direct cash transfer (DCT) of urea subsidy to farmers’ accounts. The subsidy, expressed as rupees per hectare, will be based on soil health, and size of landholding. The idea of NBS for urea is not new. It was recommended, in 2012, by a...
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