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Cut subsidies, widen tax base, economists to FM
June 23, 2004 15:02 IST
Sounding alarm bells that the Common Minimum Programme of the government is a recipe for higher fiscal deficit, economists have asked Finance Minister P Chidambaram to take stringent measures to cut subsidies and strive to broaden the tax base in the Budget for 2004-05.
Responding to a questionnaire sent by PTI, economists from across the country have demanded removal of tax exemptions and incentives as they distorted the tax structure.
"The budget deficit is likely to widen with the focus on the hike in spending on rural areas and infrastructure in line with the CMP," CRISIL managing director R Ravimohan said.
To check fiscal deficit, ICRA managing director P K Chaudhury said: "There should be efforts to widen the tax base, improve tax administration and reduce non-plan expenditure through reduction in subsidies."
Economist Ram Upendra Das of Delhi-based economic think-tank RIS said government should create a policy environment to encourage private investment in social sectors on a selective basis.
"Fiscal consolidation requires cutting food, fertiliser and petroleum subsidies. However, the delivery modes of subsidy may be re-oriented so as to make them reach the poor," ICRA said.
While apprehending that subsidies may remain untouched in the Budget, Crisil said: "There is a case for targeting them to improve their effectiveness."
Emphasising on improving tax administration, Mumbai-based economist S Mahender said: "Increase in tax-GDP ratio should be the major objective of Budget."
Mahender said subsidies on food, fertilisers and petroleum should be targeted at the poor while aiming agriculture subsidy to small and marginal farmers.
"Subsidies, instead of creating a right atmosphere for farmers, actually work in the opposite direction and benefit only the well-off farmers," A Vaidyanathan, professor emeritus of Madras Institute of Development Studies, said.
Terming the sops offered by some states like free power and water as 'short-sighted' policies, the Chennai-based economist said "Centre's fiscal problem is far worse but states should realise they too have to keep their finances in order."
Referring to the fiscal deficit of states, B Ekbal, Vice-chancellor of Kerala University, said: "States should be given greater share of central taxes."
"I would suggest thinning down the government and utilising the surplus in new ventures rather than in administration," D M Nanjundappa, Bangalore-based economist and former chairman of Indian Council of Social Science Research, said.
Favouring continuation of food and fertiliser subsidies, he said: "Government should try to ensure higher productivity and cut down expenditure."
"If there is huge financial deficit and public investment is low, then private investment will not take place," V Ramachandran, Vice-Chairman of Kerala Planning Board, said.
Ramachandran asked the government to create a favourable environment for enhanced private investment.
Nanjundappa said "We must reduce the revenue deficit by mobilising more resources and introducing user charges, which is a necessity for the country."
Terming levy of cess as ineffective due to low rate of taxes, he said for funding primary education, subsidies to higher education should be cut drastically by changing it to loan system.
According to Vaidyanathan, "Budget should address three critical issues -- the question of subsidies, fiscal indiscipline of states and creating an atmosphere of reforms in public service institutions."
Nanjundappa said Budget should be framed in such a manner that the total development outlay is adequate to implement the CMP.
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