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dna special: Big-time poll sops unlikely as government has little money

Thursday, 26 December 2013 - 7:57am IST | Place: New Delhi | Agency: dna

Finance minister P Chidambaram may not get to play the Santa Clause this year despite his last week’s marathon meetings with expenditure secretary and other key economic affairs department officials to discuss sops. Apart from the supplementary demand for grants, which was to be tabled in the parliament in the winter session, the elbow room to dole out electoral sops formed the undercurrent rhetoric in the meetings.  

A senior finance ministry official told dna requesting anonymity, “Fiscal space is really constrained and in a scenario when the global investors are looking up to the country’s deficit and growth numbers before making investment decisions, the elbow room is really limited.”

As finance minister, Chidambaram had doled out Rs60,000 crore farm loan waiver in the February 2008 – a year ahead of the Lok Sabha elections next year. Even last year, Chidambaram gifted the taxpayers with a Rs2,000 cut in the taxes for those within the Rs5 lakh bracket. This time around, Chidambaram is finding it hard to find this kind of leverage.

Now considers this: Net direct tax collections for up to December 20 in the current financial year stood at Rs4,12,918 crore, which is up 13.7% than the Rs3,63,338 crore. The catch, however, is that this is lower than the required rate of 18% for the fiscal deficit to be maintained at 4.8%.

Officials concede that almost similar is the case on the indirect taxes front such as excise and customs owing to the falling factory output. The government is now banking on cutting down the Plan expenditure for the fiscal and carrying over this year’s liabilities to the next year.

Explaining the impact of cutting down the Plan expenditure and the reason for the current mess, BJP leader and ex finance minister Yashwant Sinha told dna, “We are in a vicious cycle of inflation, high interest rates, less investments, low output again leading to high inflation. This is mainly because the Congress led UPA has not undertaken any expenditure reforms in the last ten years.
Expenditure reform is a crying need and an exercise to prioritise the investment expenditure and mitigate the unnecessary expenditure should have been undertaken. The sense that we are getting is that the government plans to slash Rs 1,25,000 crore from the plan expenditure.”

Even on the fiscal deficit, Sinha said the government is somehow trying to paint a rosy picture. “I am all for reducing the fiscal deficit. But they are trying to achieve this by cutting on defence spend, by extracting more dividends from the public sector units and carrying over liabilities to next fiscal. So while the actual fiscal deficit will be over and above 6%, they will say we have limited it to 4.8%,” added Sinha.

Tax experts also agree that doling out largesse may not be possible. Tax consultant firm Nangia and Co’s managing partner Rakesh Nangia told dna, “There is no leeway for the government, first of all. There is no surplus in cash flow and the government is still struggling for growth in tax collection. If the GDP growth is less than 5%, there will have no flexibility at all.”

The countries GDP growth has remained subdued every quarter in the current financial year. The economy grew 4.4% in the first quarter of the fiscal and slightly more at 4.8% in the second quarter. In the last financial year, the country logged a 5% growth.

FDI had been seeing lackluster show in the few years, reducing the scope for government.
According to the ministry of commerce and industry, FDI inflows in the country declined by 39% between January 2011 and September 2013. In 2011, 2012, and 2013 the country saw FDI inflows to the tune of Rs15,993.49 crore, Rs12,159.14 crore and Rs9,708.46 crore, respectively. The biggest hit was taken by sectors like telecom, power, petroleum and industrial machinery.

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