Budget attractive, but fails on the fiscal deficit front, says economist

| Updated on: Mar 02, 2015
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‘Increasing tax collections will be difficult’

Though the Union Budget has attractive features and measures to stimulate investment, it has failed to abide by the government’s earlier fiscal deficit target, said C Rangarajan, Chairman of Madras School of Economics, and the former Chairman of the Prime Minister’s Economic Advisory Council.

Addressing the audience on the impact of the Union Budget 2015 at an event organised here by Madras Management Association on Monday , he said, “Stronger action is required on the fiscal consolidation side.”

In the last Budget, the government committed to containing fiscal deficit to 3.6 per cent of the GDP for the next financial year. However, the budget for 2015-16 puts it at 3.9 per cent.

While the Finance Minister has reiterated the government’s commitment to fiscal consolidation, the smaller reduction in fiscal deficit is disappointing, he said.

Besides, he added, even the budgeted level of fiscal deficit seems a little difficult. In the current year, there is a significant shortfall in tax revenues from the Budget Estimates. Again, the Budget for 2015-16 projects a tax revenue growth of 15.8 per cent.

‘Difficult task’ Rangarajan added that with nominal income growing at around a little over 11 per cent, this is going to be a difficult task. The required tax buoyancy is 1.37 per cent. If the growth rate falls below 8 per cent, the task will be rendered more difficult.

He said the 5 percentage point reduction in corporate tax from 30 per cent to 25 per cent is a welcome move, provided the number of exemptions too come down. He also termed the proposal to increase service tax as appropriate, as it gives an idea of tax levels once the Goods and Services Tax is introduced.

According to him, the gold monetisation scheme may not take off well. He said generally only high net worth individuals buy gold to hedge inflation, but all of them may not come forward to deposit as there may be other complications. “It would have been enough if the government ensured reasonable returns on other investments as that will bring down the demand for gold.”

Published on January 24, 2018

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