ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Budget 2013-14Subscribe to Budget 2013-14

Fiscal Consolidation, Macro Fundamentals and Growthin Budget 2013-14

Due to the tight monetary policy stance adopted by the Reserve Bank of India for a sustained period of time to control infl ation, the burden of correcting macroeconomic imbalances and reviving growth seems to have fallen entirely on the Union Budget and fi scal policy. The fi scal consolidation proposed in the Union Budget for 2013-14 is a combination of a marginal reduction in aggregate non-Plan expenditure and buoyant revenue growth. If revenue targets are not met, fi scal consolidation can go off the track as the scope for expenditure contraction is limited.

Revealed Allocation Priorities in the Budget

Looking at some aspects of the Union Budget for 2013-14 that have implications for the social sector, this article points out that there is a disturbingly large gap between budget estimates and actual expenditure on social services and rural development in several years. The trends in expenditure on these two sectors also imply that rural development has had to compete directly with social services to raise its share in allocation. In addition, the projected public expenditure on health indicates that there is a disconnect between the wishes of the Planning Commission and what is refl ected in the budget.

Growth, Welfare and Fiscal Discipline

This article looks at the problem of achieving a high growth rate while enhancing social welfare and imposing fi scal discipline. It presents evidence to show by looking at the relationship between various measures of fi scal defi cit and growth that it is the quality of the defi cit that matters for growth. It is important to take into account the quality of expenditure that is reduced to curb the fi scal defi cit, and avoid the tendency to create capital account surpluses for reducing the gross fi scal defi cit. The United Progressive Alliance government has followed this short-sighted strategy all through and the budget for 2013-14 is no exception.

Revenue Foregone Estimates

For delivering benefi ts to a citizen of the country, the government can choose to adopt an expenditure programme or it can provide a tax concession or exemption. While the former is captured in detail in the budget-making exercise, the latter is not. This is the genesis of the attempts to measure the impact of tax provisions. In India, the government has been publishing a revenue foregone statement since the 2006-07 Union Budget. While there is some discussion on the revenue foregone statement as highlighting the giveaways by the government, this article draws attention to the limitations with the data presented - both in terms of provisions that are included and those that are excluded.

Tax Residency Certifi cates

The budget proposal that a tax residency certifi cate is a necessary but not suffi cient condition to access treaty benefi ts triggered a slide in the Sensex prompting the government to issue a clarifi cation that the tax authorities in India will not go behind the TRC and question the residential status of the taxpayer. This article examines the issue of TRCs from the time of the opening up of the economy. It examines the observations of the courts and joint parliamentary committees, and international jurisprudence and argues that the Government of India in a very non-transparent manner is allowing treaty shopping to continue unabated.
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