Governing deficit

2011-12 budget marks a new era,with govt fiscal policies impacting a $2 trillion economy.

The 2011-12 budget marks a new era,with government fiscal policies impacting a $2 trillion economy. But as we steadily claim an increasingly large share of global wealth,it is only pertinent that we take a look at how our fiscal policies fare,especially in comparison with the G-20 nations.

The best indicator of our immediate fiscal challenges is how our government balances its income and expenditure. The numbers on this count are rather disappointing as Indias general fiscal deficit of 9.8% in 2010 (including that of the Centre and the states) is almost twice that of the emerging economies. Indias standing on the debt front is no better.

But more than the current scenario,the real reason for worry is whether we have the will to reduce the fiscal deficit by 7% today,so that our debt burden stabilises at the 2012 level by 2030. To do this,we have to make improvement both on the revenue side,by increasing resource mobilisation,and on the expenditure side by restraining wasteful spending.

The prospects are not too bleak,especially on the revenue front as our current revenue mobilisation is lower than that of our peers. The introduction of GST and the paring of tax exemptions would help us meet targets. However,we have to follow a two-pronged approach on expenditurewe have to cut down wasteful spending on bloated subsidies and public sector enterprises,while at the same time increasing government spending in core areasthink legal systems,security enforcement,and well targeted social welfare measuresif we are to catch up with the governance standards of the developed economies,where government spending is almost twice our size.