Getting team India to win again – fiscal consolidation

The fiscal deficit, the amount by which the Indian government’s expenditures has exceeded it’s revenues is 5.5% of GDP over the last 5 years. Over that same period the revenues have averaged 9.6%, so the fiscal deficit as a proportion of the revenues is 57%.Expenditure

In 2012-2013 India’s subsidies ballooned to almost ₹2.6 trillion (2.5% of GDP), almost 30% of government expenditure. The government’s decision to steadily reduce the fuel subsidy, at 40% of the total subsidy bill, was overdue, and will help the government towards it’s aim of fiscal consolidation. With 250 million Indians living on less than $1.25 per day, the food subsidy is sensible, but widespread corruption results in food not reaching the intended beneficiaries. Subsidies

India is allowing it’s demographic dividend to lapse. Young Indians are not getting the education required for them to compete against the youth from the other Asian tigers. The government is aware of this. It introduced an act in 2009 giving the right of education to every child, 50 years after the constitution said it should. But the fiscal deficit divides intent from achievement. There are 230 million Indian children aged between 6 and 14. There are not enough schools and teachers, or the money to pay for them.

Increasing taxes is also a challenge. The super wealthy are already taking advantage of the agreement with Mauritius, and the proximity of Singapore and Dubai to minimize their taxes. The nightmare that is India’s bureaucracy is already chasing away foreign investment, without adding punitive taxes to the list of disincentives. Taxes on tourists are so punitive that India ranks alongside little Switzerland for revenue earned from its visitors. Indirect taxes hurt the poor.

The government was relying on growth to save the day, and now that hope is disappearing fast.

In anticipation the 2014 election no-one is expecting a solution soon.

But India needs a plan – now!

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