The Indian parliament building in New Delhi, India. (Photographer: Dilip Banerjee/Bloomberg News)

There Is Political Commitment To Meet Fiscal Deficit Target, Economists At Pre-Budget Meeting

Operational constraints to stick to the fiscal deficit target may vary, but there is “political commitment” by the government to not deviate from the target, Prime Minister's Economic Advisory Council member Rathin Roy said today.

“I’m sure they (the government) will (stick to fiscal deficit target). I think there is a political committment...I reinforced that,” Roy, who is also a director at the National Institute of Public Finance and Policy, told reporters in New Delhi after a pre-Budget meeting with Finance Minister Arun Jaitley.

The government has set the fiscal deficit target at 3.2 percent of the GDP for the current financial year. India exhausted 96.1 percent of its fiscal deficit target by October, suggesting that it might overshoot the target.

The Centre has stayed the course on fiscal consolidation with fiscal deficit reined at 3.9 percent in 2015-16 and 3.5 percent in 2016-17, Finance Minister Arun Jaitley was quoted as saying in a press release issued by the ministry. “We have been able to achieve these fiscal targets due to focus on expenditure rationalisation, plugging of loopholes in public expenditure through Direct Benefit Transfer Scheme, the Public Financial Management System,  and by making innovative revenue raising effort,” Jaitley said.

Lower Corporate Taxes

A suggestion was also made by economists to lower the corporate tax up to 20 percent by removing all exemptions, the release said.

It was also suggested to tax long term capital gains to bring equity and raise revenue, reduce Minimum Alternate Tax, and announce the road map for GST including convergence of rates, extending time for transactions’ matching.
Finance Ministry Statement

Multi-Annual Budgets

India needs to stop doing annual budgeting, and move towards “multi-annual budgeting”, PMEAC’s Roy said.

...We need a medium-term expenditure framework, we need a medium term fiscal framework. Stop doing annual budgeting, go into multi annual budgeting.
Rathin Roy, Member, PMEAC

Economist Ajit Ranade, who was present at the meeting, highlighted the urgent need to revive private sector investments and exports, besides focusing on job creation.

Jean Dréze recommended implementation of maternity entitlements for the national food security Act. This has been overdue for four years, he told reporters later. Dréze also called for a hike in the social security pension from Rs 200 to Rs 1,000 or at least Rs 500. This will have no impact on fiscal deficit, he added.

Customs Tariff Needs A Relook

Former Chief Economic Adviser Arvind Virmani said customs tariffs and other import duties need a revision.

“On the customs and exim (export-import) duty reform area, reforms have not happened for 10 years...I think its very important,” Virmani said.

(An earlier version of this article incorrectly attributed the comment on multi-annual budgets to Arun Jaitley.)