Tax

While trying to balance the competing demands from the union and the states, the Fifteenth Finance Commission has done a commendable job, but has also sacrificed objectivity at times.

The continuous cuts in the goods and services tax rates will derail state finances.

The global situation is tense, marked with protectionism. The domestic environment is constrained by the twin balance sheet crisis. The dull investment climate was further jeopardised by the note ban. The budget has failed to create a policy environment to kick-start a virtuous investment cycle. It has failed to address critical issue of accelerating employment.

Since sustainable deficit could be different than the numeric fiscal rule, a review of the Fiscal Responsibility and Budget Management Act is timely and important. However, such a review should bear in mind that macro-stabilisation is a central function and the burden of fiscal adjustment should squarely fall on the union government keeping state debt and deficits withinFRBM limits. Maintaining the higher tax to gross domestic product ratio of last year will be key for fiscal prudence in 2016-17.

In the Budget for 2003-04 the government has sought to underwrite risks faced by different segments of the population. When governments assume additional risks it is necessary to ask whether the mode of risk mitigation proposed is appropriate and who would benefit from such intervention. An attempt is made here to examine these and related questions in relation to the budget.