growth and austerity - the hindu

11/5/2014 Grow th and austeri ty - The Hi ndu http://ww w .thehindu.com/opinion/editorial /grow th- and- austerity /article6564451.ece 1/1 View Comments (14) Opinion » Editorial Growth and austerity he austerity measures unrolled by the Finance Ministry last week send out a clear signal that all is not well with overnment finances; at least, not yet. Though business sentiment has improved noticeably and some key indicators oint to a pick-up in growth, government expenditure is running well ahead of revenues, which have not grown at the xpected pace. Thus, the Finance Ministry has been forced to order a cut in all discretionary spending; the target is to rune expenditure, other than Plan-related, by 10 per cent. The only exceptions are interest payments, debt epayments, defence capital, salaries, pensions and grants to States. These occupy a large proportion of non-Plan xpenditure, which means that the savings might not be much. Yet, the fact that the government deems this ecessary shows the seriousness of the problem that it faces in keeping the fiscal deficit in check. Indirect tax ollections have grown at just 5.8 per cent in the first half of this fiscal compared to the budgeted target of 25.8 per ent. On the direct taxes front, refunds have eaten away almost half of the incremental collections, which have therwise been on target. Adding to the government’s woes is the sharp rise in defence pensions due to the mplementation of the ‘one-rank, one-pension’ scheme. Outgo on this is expected to shoot up by 40 per cent, or Rs.16,000 crore, this fiscal. Importantly, this was not budgeted for fully. It is not all gloom, though. The fall in global commodity prices, notably of crude oil, and the freeing of diesel prices, ave given elbow room to the g overn ment in pruni ng subsidies. The subsidy on c ooking gas and kerose ne, as also on ertilizers, will fall significantly. Oil prices are down by about a quarter since the time the new government assumed ffice and look set for a subdued phase, barring a rise in geopolitical tensions in the Middle East. Meanwhile, the overnment should push forward on disinvestment, receipts from which are budgeted at Rs.58,425 crore this year. fter an initial burst of activity in September, action appears to have slowed down on this front. The markets are on ong now and this is the best time to capitalise by offloading stakes in public sector undertakings to retail investors. Experience shows that it is not a great idea to push back the share-sale process closer to the end of the fiscal. The pectrum auction, expected in February 2015, is another big revenue source-in-waiting. With 83 per cent of the fiscal eficit already reached by the end of September, the government will be hard-pressed to keep the deficit down to the arget of 4.1 per cent of GDP for this fiscal. While austerity will help, all possible avenues to boost revenues have to be xplored so that capital spending does not suffer. Key words: Indian economy , austerity drive, economic measures

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Growth and Austerity - The Hindu

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11/5/2014 Growth and austerity - The Hindu

http://www.thehindu.com/opinion/editorial/growth-and-austerity/article6564451.ece 1/1

View Comments (14)

Opinion Editorial

Growth and austerity

The austerity measures unrolled by the Finance Ministry last week send out a clear signal that all is not well withgovernment finances; at least, not yet. Though business sentiment has improved noticeably and some key indicatorspoint to a pick-up in growth, government expenditure is running well ahead of revenues, which have not grown at theexpected pace. Thus, the Finance Ministry has been forced to order a cut in all discretionary spending; the target is toprune expenditure, other than Plan-related, by 10 per cent. The only exceptions are interest payments, debtrepayments, defence capital, salaries, pensions and grants to States. These occupy a large proportion of non-Planexpenditure, which means that the savings might not be much. Yet, the fact that the government deems thisnecessary shows the seriousness of the problem that it faces in keeping the fiscal deficit in check. Indirect taxcollections have grown at just 5.8 per cent in the first half of this fiscal compared to the budgeted target of 25.8 percent. On the direct taxes front, refunds have eaten away almost half of the incremental collections, which haveotherwise been on target. Adding to the governments woes is the sharp rise in defence pensions due to theimplementation of the one-rank, one-pension scheme. Outgo on this is expected to shoot up by 40 per cent, orRs.16,000 crore, this fiscal. Importantly, this was not budgeted for fully.

It is not all gloom, though. The fall in global commodity prices, notably of crude oil, and the freeing of diesel prices,have given elbow room to the government in pruning subsidies. The subsidy on cooking gas and kerosene, as also onfertilizers, will fall significantly. Oil prices are down by about a quarter since the time the new government assumedoffice and look set for a subdued phase, barring a rise in geopolitical tensions in the Middle East. Meanwhile, thegovernment should push forward on disinvestment, receipts from which are budgeted at Rs.58,425 crore this year.After an initial burst of activity in September, action appears to have slowed down on this front. The markets are onsong now and this is the best time to capitalise by offloading stakes in public sector undertakings to retail investors.Experience shows that it is not a great idea to push back the share-sale process closer to the end of the fiscal. Thespectrum auction, expected in February 2015, is another big revenue source-in-waiting. With 83 per cent of the fiscaldeficit already reached by the end of September, the government will be hard-pressed to keep the deficit down to thetarget of 4.1 per cent of GDP for this fiscal. While austerity will help, all possible avenues to boost revenues have to beexplored so that capital spending does not suffer.

Keywords: Indian economy, austerity drive, economic measures