NEW DELHI, Sept 28 India is on the edge of a
"fiscal precipice" and it should urgently slash subsidies in
diesel and petrol to curb a budget deficit that could hit 6.1
percent of gross domestic product this fiscal year, a government
panel said on Friday.(nL4E8KS5GW)
The following are highlights of a report by the three-member
panel headed by former finance secretary Vijay Kelkar, which was
asked to recommend ways of improving government finances.
THE NEED FOR FISCAL CONSOLIDATION
"We cannot overemphasize the need and urgency of fiscal
consolidation. Growth is faltering and inflation seems to be
embedded. The external payment situation is flashing red
lights," the panel said.
The global economy is likely to be more turbulent, making
financing of the large external payment deficits very
challenging, it said. "Potentially, if no action is taken, we
are likely to be in a worse situation than in 1991."
"We are in a state of high fiscal stress, with a
'do-nothing' approach likely to result in a central government
fiscal deficit of 6.1 percent of GDP in the current year
2012-13," the panel said.
This could result from a likely shortfall in gross tax
revenues by around $11.3 billion and higher than budgeted
expenditures on subsidies, by more than $13 billion, it added.
CUTTING BACK ON SUBSIDIES
The subsidy on diesel should be phased out by the end of the
2013/2014 fiscal year and on household cooking gas by 2014-15,
and the government should aim to reduce the kerosene subsidy by
one-third by 2014-15.
The panel suggested that urea prices be raised to reduce the
fertiliser subsidy bill estimated at $5.4 billion.
It also pitched for a progressive reduction in food
subsidies and set out the roadmap for bringing down spending on
subsidies to 2 percent of GDP in 2013/14 and 1.8 percent in
The panel suggested the direct transfer of subsidy on
cooking gas for households, kerosene, fertilisers and food to
the bank accounts of beneficiaries to reduce subsidy burden.
The government needs to prioritise and efficiently use
available financial resources that can save up to $3.8 billion
in planned expenditure, about 0.2 percent of GDP, it said.
To attract more investors and reduce risks for retail
investors, the government should set a right sale price for
shares while selling stakes in state companies, the panel said.
The government should sell its residual stakes in companies
such as BALCO and Hindustan Zinc Ltd to achieve $5.6
billion target in the current fiscal ending in March, it said.
The panel recommended a revamp of tax rules to increase the
tax-to-GDP ratio, a cut in factory gate duties and in service
tax rates to 8 percent from 12 percent in a phased manner to
align the rates with the proposed Goods and Service Tax (GST).
It suggested a comprehensive review of the direct tax code
bill, which is pending in parliament. The bill seeks to replace
archaic income and wealth tax laws with a modern tax code.
(Compiled by Satarupa Bhattacharjya and Annie Banerji)