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

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Folklore of Budget Deficit

AMONG the many elements of continuity in the fiscal strategies adopted by finance minister P Chidambaram and his predecessor, that relating to their attitude towards the level and mode of financing of the budgetary deficit deserves comment. Chidambaram has stuck by Manmohan Singh's unrealised 'commitment' to a lower fiscal deficit, with the promise of bringing it down immediately from 5.9 per cent of GDP to 5 per cent in this financial year and to less than 4 per cent in course of time. However, their joint commitment to a programme of 'reform' based on the provision of incentives and shunning of disincentives to private investment has meant that the tax-GDP ratio continues to remain extremely low in India. At present it stands at less than 16 per cent (taking the centre and the states together) compared with levels varying between 19 and 38 per cent in the developed capitalist nations. As a result, the adjustment in the fiscal deficit does not involve any, or at best only a marginal, reduction in the revenue deficit. The casualty is capital expenditure, which this year is projected to rise by just 9 per cent in nominal terms or by 2-3 per cent in real terms, even though revenues are assumed to go up by around 18 per cent in nominal terms.

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