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Control fiscal deficit through economic expansion: Arun Jaitley

Tuesday, 8 July 2014 - 7:54pm IST | Agency: PTI

  • arun-jaitley Control fiscal deficit through economic expansion: Arun Jaitley

Ahead of his maiden Budget, Finance Minister Arun Jaitley said that fiscal deficit needs to be maintained at an acceptable level through expansion of economy and tax buoyancy rather than contracting expenditure.

In his pre-budget address, Jaitley stated that tax exemption and middle income housing will remain the key focus in the upcoming Budget along with manufacturing stimulus, impetus on education, and expenditure reforms.

Replying to supplementaries during Question Hour in the Rajya Sabha, he said fiscal prudence is required because if the deficit goes out of control it would mean borrowing more to finance current expenditure. "So, if we are borrowing more in order to finance the current expenditure, we are spending beyond our means. If we are spending beyond our means, we are going to leave behind a legacy of debt," Jaitley said.

Fiscal deficit has to be "maintained at an acceptable level," he said. "And, the current acceptable level, which is by the FRBM Act, is that you have to move towards 3%. I would personally have been happier if the containment of fiscal deficit takes place by expansion of the economy, by greater tax buoyancy, by greater tax collection, rather than by contracting expenditure," Jaitley added.

Stating that fiscal deficit can be controlled by either collecting more revenues or by spending less, he said, "When you spend less, you also tend to contract the expenditure and the economy. Therefore, we will have to have a judicious mix of expenditure as well as revenue collections".

But in exceptional times like the 2008-09 global slowdown, fiscal deficit has to be put behind and come out with an economic stimulus, he said, adding that "these are circumstances where the fiscal deficit itself will rise". Fiscal deficit in 2013-14 was 4.5% of the GDP, down from 4.9% in the previous year and 5.8% in 2011-12. Jaitley said, adding that it was showing declining trend during the past three years,

"To reduce fiscal deficit below the desirable level and to improve macro-economic environment, the government has taken various measures for rationalisation of expenditure and optimisation of available resources."

"The level of fiscal deficit during current year (2014-15) up to May is Rs2,40,837 crore which is 45.6% of Budget Estimate of 2014-15," Jaitely said. The government, he added, has adopted roadmap for fiscal consolidation following amendment to the FRBM Act, which provides for lowering fiscal deficit to 3% of GDP. "Despite several challenges, government has been steadfast in policy of fiscal rectitude. In the medium-term framework, the reduction in fiscal deficit has been designed with a judicious mix of reduction in total expenditure as percentage of GDP and improvement in gross tax revenue as percentage of GDP," Jaitley said. 

When P Rajeev (CPM) asked about Rs5.01 lakh crore in uncollected taxes and another Rs5.29 lakh crore in revenue foregone by way of exemptions, the Finance Minister said tax collection drive will be intensified and there will be no laxity shown to those who owe taxes. "As far as your other point is concerned about people from whom taxes are due and not collected, we certainly will intensify that action and I am one with you that those are the people to whom no laxity has to be shown," he said.

However, exemptions from payment of income tax to certain categories to give flip to industry were needed, he added.

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