While some of the relief measures announced by the FM are just financial jugglery, the remaining items offer some concrete benefits to the poor In his address to the nation on March 19, Prime Minister Narendra Modi announced the setting up of an Economic Response Task Force (ERTF) under the Union Finance Minister (FM), Nirmala Sitharaman to come up with a package of measures to alleviate the problems faced by industries, sectors, businesses and workers due to the economic disruption caused by Covid-19. The most seriously affected sectors, such as aviation, transport, hospitality, tourism, retail, micro, small and medium enterprises (MSMEs), are looking for a host of concessions such as additional interest subvention (for instance, MSMEs are demanding three-five per...
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Category: Fiscal deficit/subsidies
Fiscal burden of Corona
In a span of less than a week, there have been three sets of official announcements enumerating the measures to alleviate the problems faced by industries, businesses and workers due to the economic disruption caused by Covid – 19. The first two were made by the Finance Minister [FM], Nirmala Sitharaman on March 24 and 26, 2020 and the third by the Governor, Reserve Bank of India [RBI], Shaktikanta Das on March 27, 2020. On March 24, 2020, FM announced reliefs for the industries and businesses, which are largely ‘procedural’. These include extending the date for filing returns [income-tax, GST, customs, excise and statutory filings under Companies Act], reducing interest chargeable on delayed payments, exemption from penalty, increasing threshold of...
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Stop using fuel taxes as milch cow
High excise duty and VAT on fuel results in high inflation, higher subsidy payments on fertilisers, food, etc, and low international competitiveness of Indian goods. Centre is desperate to grab any opportunity available to garner additional revenue. Therefore, it has hiked the duty. ———————————————————————————————— In the wake of widespread destruction of demand triggered by Covid-19, failure of OPEC and non-OPEC suppliers to agree to a production cut, and the two front-line exporters from the respective groups viz. Saudi Arabia and Russia vying to capture the shrinking market, the price of crude oil has plunged to less than $30 per barrel. Leveraging this, in sync with its past practice of mopping up the oil bonanza, the Modi government has yet again...
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Corona attack on Union’s fragile finances
In his address to the nation on March 19, 2020, Prime Minister, Narendra Modi announced the setting up of an Economic Response Task Force [ERTF] under the union finance minister, Nirmala Sitharaman to come up with a package of measures to alleviate the problems industries, sectors, businesses and workers are facing due to the economic disruption caused by Covid – 19. The nerve shattering Covid – 19 has come at a time when the union government is facing a huge shortfall of about Rs 200,000 crore in the tax collection vis-à-vis even the revised estimate [RE] of Rs 1400,000 crore for 2019-20 [when compared to budget estimate, the shortfall is much higher at Rs 400,000 crore] and staring at substantial...
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Fiscal slippage – the denial syndrome
In the Union Budget for 2020-21, Finance Minister, Nirmala Sitharaman revised the fiscal deficit [FD] for 2019-20 to 3.8% of GDP – up from the budget estimate [BE] 3.3%. In absolute term, the RE is Rs 766,500 crore against BE Rs 700,000 crore. Sitharaman has explained away the slippage in terms of recommendation of the NK Singh committee on review of the Fiscal Responsibility and Budget Management [FRBM] Act which permits breach of the target in case of “far reaching structural reforms with unanticipated fiscal implications”. The justification is untenable as during the year, there was no reform measure that can be put in the category of ‘far reaching structural reforms’. The government could slip further even from the revised...
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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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Freebies – road to fiscal disaster
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 [Aam Aadmi Party (AAP) won 62 out of a total of 70 assembly seats even as its dominant rival BJP secured a mere 8; the third main contestant in the fray Congress got none]. Kejriwal claims that this is a vindication of the ‘development model’ pursued by him during the last 5 years since February 2015. He vows to pursue this in Delhi during the next 5 years and has crafted plans to leverage it for establishing the footprint of AAP in other states. What precisely is the model? Will the states be able to...
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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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Strategic disinvestment – will it take off in 2020-21
Buoyed by the success of disinvestment [sale of government shares in public sector undertaking (PSU)] undertaken 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, Modi – government had set an ambitious target of getting Rs 105,000 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% implying privatization] and management control to a private entity. The crucial ‘strategic disinvestment’ proposals included divestment of all of government’s shareholding in Bharat Petroleum Corporation Limited [BPCL] 53.29% ; Containers Corporation of India [ConCor] 30%; Shipping Corporation of India [SCI] 63.75%; North Eastern...
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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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