This is the key to fiscal consolidation

Wed, 14 Mar Pre-Open

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As the fiscal year 2011-12 draws closer to an end, it is time for everyone to balance books. For the Government, it is going to be a tough time as the fiscal deficit overshoots the original estimates of 4.6% by significant number. While last year the Government saved its face by using cash flows from spectrum auction to telecom companies and stake sale of PSUs, its disinvestment plans this year hardly met with much success. And now it is knocking on every door possible to mop up funds and reduce the deficit gap.

The big question is: Is this under performance going to become a norm or is there a way of doing better? While the economic factors such as slowing growth, higher expenditure and damp investment climate don't look very encouraging, there is scope for better fiscal performance in the coming year. The key is to squeeze money by reducing the bulging subsidy bill. No one can deny that the subsidies for different sectors - food, fuel and fertilizer are the biggest culprit for a sagging economic performance. While it is not feasible to do away with them totally, the Government should look for ways to justify the purpose of these subsidies. This will require, not just allocation of funds but efficient execution as well to make sure that such benefits reach only the intended beneficiaries. To give you an example, the price control on diesel is leading to dieselization of economy with more and more vehicles now opting for diesel engines and SUVS reaping undue benefits. A similar instance can be seen in the case of kerosene adulteration or subsidized domestic LPG being misused in the commercial segments or as vehicle fuel. A better targeting mechanism needs to be devised for food subsidies as well. In the fertilizer segment, a possible option could be to revive the domestic fertilizer industry so as to reduce dependence on imported urea and hence a cut back in compensation in the fertilizers segment.

As we are close to the announcement of a fresh budget, it is important that the Government distributes the amounts judiciously between the sectors and does not over allocate towards different social schemes. Last but not the least; it is time that the Government wakes up to the need of quality expenditure that focuses more towards productive investments than consumptive spending. This will boost up the investment sentiments for both domestic and outside investors thus leading to a real growth in the Indian economy.