India – Fiscal Correction
On Thursday, July 8, 2010 18:03 by Sudip BandyopadhyayOver the years international investors, rating agencies and innumerable experts talked elaborately on the sad state of public finances in India which includes Central Government, State Governments and Local Governments. While things have not yet become drastically different, winds of changes are definitely blowing and the same should surely be talked about.
The big problem in India was leakages from the system at multiple levels resulting in wastages and inefficiency. Also the subsidy mechanism of providing benefits to weaker section of the society resulted in distortion and wastages.
Over the last couple of years the Central Government and some State Governments have started taking proactive steps to stem the rot. Introduction of VAT,put a cap on serious leakages of indirect tax revenues . Forthcoming introduction of GST and DTC from April 2011 should further tighten the tax collection mechanism. Caliberated steps are also being taken to tackle menace of subsidies. Petroleum product subsidy is being done away with in a phased manner and this should significantly improve the fiscal situation. Efforts are now being directed towards restructuring the fertiliser subsidy, another major problem area.
Recalibration of the state help to weaker sections of the society should be possible by reaching out to the needy directly post the introduction of UID and reasonable achievement on the target of financial inclusion. Hopefully, from the next fiscal year, the same should be possible to an extent and the entire subsidy mechanism can be dismantled over the next few years.
All the above steps taken over the last couple of years would go long way in correcting fiscal imbalance in India. Investors should take cognisance of these structural changes which are taking place quietly and factor in the emergence of a fiscally strong and sound Indian economy while planning medium to long termdomestic investment.
