Wednesday, September 17, 2014

Fiscal consolidation is a term that is used to describe the creation of strategies that are aimed at minimizing deficits while also curtailing the accumulation of more debt. The goal of fiscal consolidation in any setting is to improve financial stability by creating a more desirable financial position. In order for the policy to function properly, it must consider the total cost of essential expenses and identify ways to generate as much benefit from those purchases as possible.

The Government can take the following steps  :-

1) Subsidy: This is one of the major Non Plan expenditure, Government need to reduce extravaganza subsidies along with reducing the leakage.
(The subsidy system in India is wrought with inefficiencies. There is limited scope to reduce expenditure, many advocate a case for targeted subsidies.Targeted subsidies, particularly fertilizer and fuel subsides, will ensure that the benefit reaches only the needful. In India, agricultural incomes are not taxed. On top of that many rich farmers enjoy the benefits of agriculture-related subsidies. The subsidy system needs to be more targeted in order to reach only the poor and needy. A step in this direction, though is admittedly not an easily implementable one, given the political sensitivities.)

2) Tax Structure Reform: Implementation of GST will help Government earn extra tax revenue, they should also improve on Tax to GDP ratio by effective implementation of Tax payment on time.
(For the taxpayer, it will mean less paperwork and could actually translate into a lower tax burden, as it would remove distortions from the system.)

3) Improve PSU: PSU is one of the important source for earning revenue for Government, they should improve its performance. Disinvestment is a good strategy, not only it helps in earning money but also makes the PSUs more competitive and performance oriented.
(With the Indian markets rallying, aggressive disinvestment at this stage will yield the desired revenue. Disinvestment is a good way of raising money because it solves the twin goals of easing the government's revenue woes and at the same time provides the long-term benefit of increased efficiency in Public Sector Units. It is also a relatively easy step to fill up the emptying coffers of the government)

4) Recover Black money: With Supreme Court order and SIT in place, if the black money comes back to India, it will help reduce the fiscal deficit significantly.

5) Internal Energy Sources: If CBD and shale gas is developed within India along with nuclear energy and solar energy, it will reduce our dependence on costly crude oil expenditure, thus it would help to reduce a major part of export expenditure.

6) Defence capabilities: If the defence capabilities can be built internally with best technologies in place, a major non planned expenditure can be reduced along with earning money by exporting.

7) FDI: with good policies in place, attracting FDI will help long term money availability in India.

8) Austerity measures: The government and government officials should take austerity measures to reduce expenditure.

9)Tax Slabs and Tax Administration:  It is estimated that only 3-4% of Indian people are paying taxes. A genuine structural change in tax laws and tax environment is very important to increase the tax payers in India. The environment should be conducive for tax payers as well as tax collectors.Tax evasion at a large scale is present in India.The government needs to look at measures in which the self-employed and corporates do not end up evading tax. The government should also look at introducing a tax slab or incomes above Rs 10 crore.

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