Finance minister Arun Jaitley has set an ambitious target to nurse India’s delicate public finances back to health.
He pledged to stick to a fiscal deficit target of 4.1% of GDP in 2014-15, penciling in a 17% rise in tax revenue collections during the year and keeping the subsidy bill in check.
“Considering that we had two years of low GDP growth, an almost static industrial growth, a moderate increase in indirect taxes, a large subsidy burden and not so encouraging tax buoyancy, the target of 4.1% fiscal deficit is indeed daunting,” Jaitley said in his budget speech.
“Difficult, as it may appear, I have decided to accept this target as a challenge,” he said.
The medium-term roadmap to reduce fiscal deficit—shorthand for the amount of money that the government borrows to fund its expenses—is predicated upon an overhauled subsidy regime that will plug leakages and reduce wasteful expenditure.
Jaitley proposed to revamp the subsidy regime, including food and petroleum subsidies, and make it more targeted while providing full protection to the poor and marginalised.
This, he said, was necessary to raise adequate resources for developmental needs.
Jaitley’s consolidation roadmap, to bring down the deficit by 3% of GDP by 2016-17, earned kudos from his predecessor P Chidambarm, who had set the same target for 2014-15 in his interim budget presented in February.
“I am glad that Arun Jaitley has acknowledged the basic validity of the numbers presented in the Interim Budget for 2014-15 and has stuck to them - fiscal deficit of 4.1% and revenue deficit of 2.9% (marginally lower than 3.0%),” Chidambaram said.
“ We cannot leave behind a legacy of debt for our future generations,” Jaitley said. “We cannot go on spending today which would be financed by taxation at a future date. There is an urgent need to generate more resources to fuel the economy,” he said.
”In order to achieve the fiscal targets of fiscal consolidation it is essential that the government follows the policy of progressively reducing the expenditure on subsidy through improved targeting of beneficiary,” said the medium term fiscal policy statement appended with the budget documents.
The government will also constitute an Expenditure Management Commission which will look into various aspects of expenditure reforms that need to be undertaken.
The Commission will give its interim report within this financial year, Jaitely said demonstrating the government’s intent to walk the talk on fiscal discipline.
Stressing that the government is committed to the principle of “Minimum Government, Maximum Governance”, he said the time has come to review the allocative and operational efficiencies of government expenditure to achieve maximum output.