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November 2012

Heed the Kelkar report – Govt should move immediately on fiscal consolidation

By Tarunkumar Singhal, Raman Jokhakar, Chartered Accountants
Reading Time 1 mins
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The report of the Vijay Kelkar Committee on fiscal consolidation argues that the Indian economy is “poised on the edge of a fiscal precipice”. The fiscal deficit is poised to miss its budgeted target by a large margin for the second year in a row — it could be 6.1% of gross domestic product, a full percentage point higher than the Budget estimate. India is going through a demographic bulge, with millions entering the workforce yearly; fiscal space is needed to stimulate growth, or India’s demographic dividend will become a curse. The cost of doing nothing, the report argues, would approximate the crisis of 1991. The panel makes suggestions to take the fiscal deficit down to 5.2% of GDP in 2012-13. However, some of these suggestions, including on tax policy, will require legislative action — difficult for the United Progressive Alliance (UPA) to pull off currently. The emphasis should, therefore, be on speedily implementing administrative reforms, instead of merely focusing on legislative changes such as the constitutional amendment for the goods and services tax. As the chairman of the committee told, credible action, not a big-bang step, is needed to achieve fiscal consolidation.

(Source: The Business Standard dated 01-10-2012).
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