An offshoot of the economic crisis triggered by the pandemic is manifest in the Centre coming out with the ‘real’ state of its finances. In the Budget presented on February 1 by Finance Minister Nirmala Sitharaman, the revised estimate (RE) for fiscal deficit in 2020-21 is put at 9.5% of GDP. This is almost three times the budget estimate (BE) of 3.5%, which itself was 0.5% higher than the 3% threshold required by the Fiscal Responsibility and Budget Management (FRBM). It was justified by her as due to “far-reaching structural reforms with unanticipated fiscal implications.” The slippage is not just due to a shortfall in tax collection and non-tax revenue, especially proceeds from disinvestment, but also due to inclusion in...
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Category: Fiscal deficit/subsidies
Reinvigorating growth: Where is the money?
The FM wants to boost growth, but it will be at the cost of fiscal de-stabilisation. One is not sure whether a sustained, rapid surge will come as a huge resource gap remains Taking a cue from the prescription that the Chief Economic Advisor (CEA), Krishnamurthy Subramanian gave in the Economic Survey: 2020-21 that “the Government should come up with more fiscal measures for short-term support to the economy and businesses”, Finance Minister (FM) Nirmala Sitharaman has gone ahead with some “big bang” measures. She has not just attempted to give a boost to industries and businesses in the short-term but has also given an indication of her intent to put them on a high growth trajectory in the medium to...
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Paratroop reforms on the ground
Of crucial importance is the need to actually execute reforms and make them work on ground zero. Unfortunately, this is not happening Unlike the Economic Survey for 2019-20, which was prepared keeping in mind the ambitious target of achieving a $5 trillion economy by 2024-25, this time around, the overarching theme revolves around demonstrating how brilliantly the Government has managed the Coronavirus pandemic. Through lucid elaboration on the details and modeling with facts and figures — using international as well as inter-State comparison within India, Chief Economic Adviser (CEA) Krishnamurthy Subramanian has given ample justification for the “early” and “stringent” lockdown from March and thereafter calibrated lifting of restrictions from June onward. Tacitly, he has also admitted that this led to compression...
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Many a slip…
It is natural to expect an economic rebound in FY 2021-22. But it is vital to take a pragmatic view based on an objective assessment of how the situation unfolds on ground zero The green shoots seen in October, in particular the rise in the Index of Industrial Production (IIP) by 3.6 per cent, have prompted agencies to revise their growth assessment for the current financial year (FY) from the minus 9.5-10.5 per cent projected earlier to minus 7.5-8.5 per cent, now. For the FY 2021-22, when the impact of the virus is expected to subside to a large extent due to the availability of the vaccine, it is only natural to expect an economic rebound. However, it is necessary...
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Don’t squeeze PSUs
The Govt should collect money from all those who owe it instead of squeezing CPSEs for bridging fiscal gaps. This is neither healthy for the economy nor good for the enterprises The Department of Investment and Public Asset Management (Dipam) has come out with a circular requiring Central Public Sector Enterprises (CPSEs) to pay interim dividend every quarter or half-yearly, depending on whether it is a relatively higher dividend (100 per cent or Rs 10 on a share of Rs 10) or less. Even those which can’t pay the prescribed “minimum” must give an interim dividend. Further, at least 90 per cent of the projected annual dividend should be paid as interim. Even as the bureaucrats justify this in terms...
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Don’t squeeze PSUs for fiscal gains
Vide a letter addressed to the central public sector enterprises (CPSEs) the department of investment and public asset management (Dipam) under Ministry of Finance has asked (i) enterprises which pay relatively higher dividend (100% or Rs 10/- on a share of Rs 10/-) may consider paying interim dividend every quarter after declaration of quarterly results; (ii) enterprises which pay less than 100% may consider paying interim dividend usually on half-yearly basis; (iii) those which can’t pay as per the prescribed ‘minimum’ should pay interim dividend during October/November each year based on projected profit after tax (PAT) following second quarter (July – September) results. All CPSEs should consider paying at least 90% of projected annual dividend, in one or more installments, as...
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Stay within limits
If the FD range gets embedded in the FRBM Act, it will give sanction to slippages. It will defeat the purpose of fixing a target, which is to obligate the Govt to keep expenses in check The Finance Ministry is building pressure on the 15th Finance Commission (15th FC) to allow greater flexibility while fixing the fiscal deficit (FD). It wants to adopt a flexible, range-bound FD target instead of a fixed number. With this aim in mind, the Modi Government is reviewing the Fiscal Responsibility and Budget Management (FRBM) Act. The issue was discussed at the Economic Advisory Council (EAC) of the 15th FC, wherein the chairman, NK Singh, cited a similar practice followed by the Reserve Bank of India’s (RBI)...
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Fiscal deficit – Shun range-bound target
Modi – government is reviewing the Fiscal Responsibility and Budget Management (FRBM) Act in the light of the economic crisis caused by the Covid-19 pandemic and adopt a flexible, range-bound fiscal deficit (FD) target instead of a fixed number. The issue was discussed at the Economic Advisory Council (EAC) of the 15th Finance Commission (XVFC) on September 4, 2020, wherein the chairman, NK Singh cited similar practice followed by the Reserve Bank of India’s (RBI) with +/- 2% inflation target while deciding its monetary policy. The immediate prompt for this is sharp contraction in GDP (gross domestic product) by about 24% in the first quarter of current financial year and corresponding steep reduction in tax collections even as the expenditure...
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A taxing question
As pointed out by the nation’s top auditor, there are irregularities galore in the management of the various cesses as they have been appropriated to manage deficits Reining in the fiscal deficit has always been a challenge for the Centre especially after the enactment of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, which requires it to maintain the shortfall within a specified threshold. At the same time, there are certain thrust areas, such as education, roads and other infrastructure, telecommunication networks in rural areas, exploration of oil, gas and so on, which the Government feels won’t get the desired funds in the normal course of budgeting. This led to successive dispensations to think of a special tax or...
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Cess – anathema in Indian taxation
Reining in the fiscal deficit (excess of total expenditure over total revenue) has always been a challenge for the union government especially after the enactment of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 which requires it to maintain the deficit within a specified threshold. At the same time, there are certain thrust areas such as education, roads and other infrastructure, telecommunication network in rural areas, exploration of oil and gas etc which mandarins in the finance ministry felt won’t get the desired funds in the normal course of budgeting and deciding allocation. This led them to innovate special taxes such as USO (Universal Service Obligation) levy imposed on telecom service providers, Cess on Crude Petroleum Oil (CPO), Road...
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