SABER Research Project Conference on SABER Research Project Conference on Efficiency of Economic Policy Formation Development and Implementation inEfficiency of Economic Policy Formation Development and Implementation inEfficiency of Economic Policy Formation, Development and Implementation in Efficiency of Economic Policy Formation, Development and Implementation in

Key South Asian EconomiesKey South Asian EconomiesIndia International Centre, New DelhiIndia International Centre, New Delhi

June 29June 29--30, 200930, 2009

Public Finance and TaxationPublic Finance and TaxationPublic Finance and Taxation Public Finance and Taxation Reforms in IndiaReforms in Indiaff

Dr J V M SarmaUniversity of HyderabadUniversity of Hyderabad

The FocusThe FocusThe FocusThe Focus

Review of the fiscal developments in India focusing on the policy changes

and their impactand their impact

Presentation sequencePresentation sequencePresentation sequencePresentation sequence

PFM and Development StrategyPFM and Development StrategyLand mark Reforms of 90s, paradigm changeTrends in the Fiscal ComponentsAnalysis of the Tax Policy EvolutionAnalysis of the Tax Policy EvolutionThe Unfinished Agenda and likely Institutional hurdles.

PublicPublic Finance Management Finance Management & D l S& D l S& Development Strategy& Development Strategy

Nature ofNature of PFMPFMNature of Nature of PFMPFMDevelopment strategy options for India at the time p gy p fIndependence

Market orientation vs government interventionCh d h M d kChoice towards the Mixed economic framework With bias towards heavy industry and dominant role for public sectorpublic sectorPronounced bias against foreign tradeSocialistic pattern of developmentSocialistic pattern of developmentFederal Fiscal Sharing PFM not easyPFM not easy.

GDPWorld Macro Fiscal InteractionsMacro Fiscal Interactions

f l i b idi

Population

which inturn, results

Total

is a function of the accumulated capital stock which can be inverted and used to determine the demand for capital for given level of income.

Yt= f {Kt-1}Kt = Kt 1(1 δ) + It

NontaxTaxTransfers Salaries Subsidies

Revenue

in higher revenue expenditure.

The govt capital exp alsoHHTotal Capital

Kt = Kt-1(1-δ) + ItTotalRevenue

GDP is also the base for own tax and non tax revenues

RevenueExp

Revenue b l Interest

The govt capital exp also entails the O&M exp

HH Saving

The private sector Capital formation is related to theGDP is also the base for own tax and non tax revenuesRt= f {Yt}

Transfers from the rest of the country also contribute to the revenue

growth of current expenditure other than interest payments basically depends on the population, the national income, apart from other variables.

balance

Fiscal

Interest payments

O&MPvt sectorCapital exp

formation is related to the government sector capital expenditure via the crowding-in or crowding-out functionrevenue. Ct= f{Νt, Yt …}

Govt sector The demand for the govt capital

The revenue balance, along with the demand for capital, determines

balance

to be financed by new borrowings.Debt outstanding

O&Min or crowding out function.

Govt sectorCapital exp

emanates from total capital requirement in the economy

the Fiscal DeficitNewBorrowings

Key Requirements for mixedKey Requirements for mixed development development strategy to workstrategy to work

Need for Private Public Macro BalancingNeed for Private-Public Macro Balancing Determining the respective areas of activities to achieve crowding in,Allocation of resources, avoiding crowding outAllocation of resources, avoiding crowding outEfficient government sector managementRegulating the Private sector

PrePre--9090 Policy Stance:Policy Stance: PProblemsroblemsPrePre 90 90 Policy Stance:Policy Stance: PProblems roblems

Development strategy too much centered on directDevelopment strategy too much centered on direct intervention of the state

in terms of providing direction, controls, regulation andin terms of providing direction, controls, regulation and even direct participation in economic activities.

Inefficient, high cost and non-competitive industrial ff , g pstructure; Serious infrastructure bottlenecksSerious infrastructure bottlenecks Significant constraints on the availability of financial capitalcapital.

The Landmark ReformsThe Landmark Reforms of of 909090s90s

TheThe BoPBoP Crisis ofCrisis of 19911991: The fire: The fire--fightingfightingThe The BoPBoP Crisis of Crisis of 19911991: The fire: The fire fightingfighting

Cutting of Fiscal Deficit through speicial financingCutting of Fiscal Deficit through speicial financing from IMFTrade and Industrial liberalizationTax ReformTax ReformCrisis – catalytic for a paradigm shift in the tax

lipolicy

Structural reforms since earlyStructural reforms since early 9090’s’sStructural reforms since early Structural reforms since early 9090 ss

Industrial licensing relaxedgMarket forces allowed to operate in many economic sectorsIndependent regulators in electricity/ insurance/ telecomFDI/ domestic private investment allowed in / pelectricity/ insurance/ telecom & many other economic sectors Beginning made in disinvestment of Central/ State PSUs

VisibleVisible shifts in the ecshifts in the economic onomic Growth Growth patternpattern

From a modest 3% till 70s to over 5 8% in laterFrom a modest 3% till 70s to over 5.8% in later decades

8 67 8 529.1110

annu

m

5.7 5.8 5.97

8.67

7.398.52

56789

erce

nt p

er a

Average for the decade

3.04.02 3.93

12345P

01

70s

80s

90s

000-

01

001-

02

002-

03

003-

04

004-

05

005-

06

006-

07

20 20 20 20 20 20 20

The Recovery pathThe Recovery pathThe Recovery path The Recovery path

Real investment growth reaches 40% by 2000 01Real investment growth reaches 40% by 2000-01Growth in industrial investment touches > 50% Export growth touches >20% Increase in per capita GDPIncrease in per capita GDPIndia the second fastest growing economy today .

Trends in Fiscal ComponentsTrends in Fiscal ComponentsTrends in Fiscal ComponentsTrends in Fiscal Components

Continued Fiscal Downtrends: A Road Continued Fiscal Downtrends: A Road Block to DevelopmentBlock to Development

Narrow tax baseNarrow tax baseLow, stagnant tax/GDP ratioImpact of the Pay CommissionRising interest burdenRising interest burdenGrowing revenue deficitGrowing fiscal deficitDeclining capital expenditureDeclining capital expenditure

High fiscal deficits (Centre & States)High fiscal deficits (Centre & States)High fiscal deficits (Centre & States)High fiscal deficits (Centre & States)

2%

4%

Fiscal balance Revenue balance Primary balance

-2%

0%

-6%

-4%

-10%

-8%

1960

-61

1965

-66

1970

-71

1975

-76

1980

-81

1985

-86

1990

-91

1995

-96

2000

-01

2005

-06

2006

-07

The Quality of Fiscal Deficit: A cause for The Quality of Fiscal Deficit: A cause for worryworry

Firstly the fiscal deficit driven by revenue deficitsFirstly, the fiscal deficit driven by revenue deficits.

2%

4%Fiscal balance

Revenue balance

-2%

0%

2%

-6%

-4%

-10%

-8%

1960

-61

1965

-66

1970

-71

1975

-76

1980

-81

1985

-86

1990

-91

1995

-96

2000

-01

2005

-06

2006

-07

The Quality of Fiscal Deficit: A cause for The Quality of Fiscal Deficit: A cause for worryworry

Secondly a significant increase in debt serviceSecondly, a significant increase in debt service liability4% Fiscal balance

Primary balance

2%

0%

2%Primary balance

-6%

-4%

-2%

-10%

-8%

6%

1960

-61

1965

-66

1970

-71

1975

-76

1980

-81

1985

-86

1990

-91

1995

-96

2000

-01

2005

-06

2006

-07

Financing of Fiscal DeficitFinancing of Fiscal DeficitFinancing of Fiscal DeficitFinancing of Fiscal Deficit

10

12Other liabilitiesExternal financingMarket borrowing

d l / d fi i

8

10Budgetary surplus / deficit

4

6

2

-2

0

1990

-91

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07r

007-

08b

-4

2 20

The TaxThe Tax Policy EvolutionPolicy EvolutionThe TaxThe Tax Policy EvolutionPolicy Evolution

GeneralGeneralGeneralGeneral

Tax structure guided by the economic and political g y pstructures and choices 90s mark a big change in the growth strategy. We g g g gytouch upon Pre-90 tax policy stanceTax Reforms of 90sPost Millennium tax reform experienceFuture reform prioritiesLikely institutional bindings.

Tax policy constraints in preTax policy constraints in pre--9090ssTax policy constraints in preTax policy constraints in pre 9090ss

Need for raising resources for the public investmentNeed for raising resources for the public investment and government current expenditure requirements Adoption of socialistic pattern means need to maintain high progressivityg p g yAnti- foreign trade regime – high foreign trade related taxesrelated taxes

The Resultant weaknessesThe Resultant weaknessesThe Resultant weaknessesThe Resultant weaknesses

Anti- foreign trade regime – high customs and export f g g g pdutiesHigh progressivity – personal income taxg p g y pHigh tax rate differentiation – corporate tax, union excise, customsPlethora of exemptions, concessions, deductions, rebates and preferences

d l l h h lFederal fiscal sharing further complicatesResulting tax complexity, difficult to manage

PrePre--9090ss Tax Reform under systemicTax Reform under systemicconstraintsconstraints

Constrained due to the nature of the development paradigm – only f p p g ymild ReformsThe TEC (1954) – first comprehensive attempt after IndependenceIndependence Kaldor Committee (1956) – Expenditure tax and move towards integrated taxationDTEC (1971) – Reduction in income tax rates, and slabsITEC (1977) – Moves in the direction of VAT introduction at the Central levelthe Central levelThe LTFP (1985) – advocated reduction of customs, rationalize excise – partially implented.

The Landmark Tax The Landmark Tax R fR f ff 9090ReformsReforms of of 9090ss

TheThe TRCTRC ((19911991))The The TRCTRC ((19911991))

Three reportsThree reports ––Three reports Three reports Broad principles for taxes on income and Broad principles for taxes on income and wealth tariffs and taxes on domesticwealth tariffs and taxes on domesticwealth, tariffs and taxes on domestic wealth, tariffs and taxes on domestic consumption in the Interim Reportconsumption in the Interim ReportTaxTax administration and enforcement aspectsadministration and enforcement aspectsTaxTax administration and enforcement aspects administration and enforcement aspects --Part I of the Final report , Part I of the Final report , Restructuring the t riffsRestructuring the t riffs P rt II of the Fin lP rt II of the Fin lRestructuring the tariffs Restructuring the tariffs -- Part II of the FinalPart II of the FinalReportReport

Basic principles underlying the Basic principles underlying the recommendations recommendations

Base broadening,Base broadening,Base broadening, Base broadening, Lowering of marginal tax rates, Lowering of marginal tax rates, Reducing rate differentiationReducing rate differentiationReducing rate differentiation, Reducing rate differentiation, Simplifying the tax structure and Simplifying the tax structure and Measures for more effectiveMeasures for more effective tax tax administration administration Revenue neutrality in the short term Revenue neutrality in the short term yyRevenue productivity in the medium and long Revenue productivity in the medium and long term. term.

Major concrete recommendationsMajor concrete recommendationsMajor concrete recommendationsMajor concrete recommendations

Simple three-tier personal income tax structure, p p ,with an entry rate of 20 per cent and a top rate of 40 per cent.

Phased reduction of the corporate tax rate to 40 per cent, Ab l f h d b d l h ld dAbolition of the distinction between widely-held and closely-held companies,Ab liti f lth t ll tAbolition of wealth tax on all assets

except certain ‘unproductive’ assets.

Major concrete recommendationsMajor concrete recommendationsMajor concrete recommendationsMajor concrete recommendations

Phased reduction of the high import duties (manyPhased reduction of the high import duties (many above 200 per cent in 1991) to a range of 15 to 30 per cent for manufactures and 50 per cent for30 per cent for manufactures and 50 per cent for certain agricultural items by 1997-98. R t t in f nt l i t v llRestructuring of central excise to cover all manufactures, Reduction of multiple excist tax rates to three in the range of 10 to 20 per cent

Major concrete recommendationsMajor concrete recommendationsMajor concrete recommendationsMajor concrete recommendationsExtension of MODVAT credit to all inputs including f p gmachinery.Selective excises at higher rates on luxury consumption iitems.Elimination of the numerous prevailing exemptions and tax preferences in both direct and indirect taxestax preferences in both direct and indirect taxes Far-reaching reforms of tax administration, including the deployment of modern information technology and online p y f f gylinkage of new tax identification numbers to a national network.

ImplementationImplementationImplementation Implementation

In different phases by different governments – Broad ff p y ff gThrust kept in tactPIT rates lowered Import duties cutCorporate distinction –widely held closely held p y yabolished.Single CENVAT rateService tax introducedReduction in the exemptions and incentives

The Aftermath ofThe Aftermath of TRCTRC TaxTax ReformsReformsThe Aftermath of The Aftermath of TRCTRC TaxTax ReformsReforms

MATMATFurther lowering of CENVAT and customsVAT at the States levelThe FRBMThe FRBMAdvisory Group on Tax Policy 2001The Kelkar Task Force Committee on Direct and Indirect taxesIndirect taxes

Economic performance in theEconomic performance in the 2121 centurycenturyEconomic performance in the Economic performance in the 21 21 centurycentury

Striking till the CrisesStriking till the CrisesThe Crises and their impactRise in Petroleum price and other commodities –rising inflationrising inflationThe Financial CrisisSeries of monetary and fiscal measures

Combined Receipts and Disbursements of the Combined Receipts and Disbursements of the ddCentral and State governments (% of GDP)Central and State governments (% of GDP)

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01

1960-61

1970-71

1980-81

1990-91

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07r

2007-08b

I Total Disbursements 15.4 17.7 24.9 26.8 26.1 26.5 26.7 27.1 26.1 25.9 27.0 27.3A Revenenu expenditure 9.9 12.5 16.5 21.6 23.0 23.5 23.8 23.6 22.1 21.9 22.6 21.9

Interest payments 1.3 1.6 2.1 4.4 5.8 6.1 6.2 6.3 6.0 5.6 5.4 5.2Defence 1.4 2.3 2.5 1.9 1.8 1.7 1.7 1.6 1.4 1.3 1.2 1.1Subsidies 0.0 0.0 0.6 1.2 1.0 1.1 1.3 1.3 1.1 1.0 1.0 0.9

B Capital expenditure 5.7 4.7 7.7 5.3 5.3 5.5 4.5 5.8 5.7 6.4 7.0 8.0II Total Receipts 10 0 12 8 16 4 17 6 17 0 16 5 17 3 17 9 18 4 19 2 20 3 20 5II Total Receipts 10.0 12.8 16.4 17.6 17.0 16.5 17.3 17.9 18.4 19.2 20.3 20.5

A Revenue receipts 10.0 12.8 16.4 17.6 17.0 16.5 17.3 17.9 18.4 19.2 20.3 20.5(i) Tax 7.9 10.4 13.8 15.4 14.6 13.8 14.5 15.0 15.7 16.4 17.7 18.1

Direct 2.3 2.2 2.3 2.2 3.4 3.2 3.5 4.0 4.4 4.7 5.6 5.7Indirect 5.5 8.2 11.5 13.6 11.2 10.6 11.1 11.3 11.6 12.2 12.5 11.4

(ii) Nontax 2.2 2.4 2.6 2.2 2.4 2.7 2.8 2.8 2.7 2.8 2.6 2.4

Interest receipts 0.0 0.0 1.2 1.1 0.8 0.7 0.7 0.7 0.6 0.6 0.4 0.4PSU di id d t 0 4 0 2 0 2 0 1 0 5 0 7 0 8 0 8 0 5 0 7 0 7 0 7PSU dividends etc 0.4 0.2 0.2 -0.1 0.5 0.7 0.8 0.8 0.5 0.7 0.7 0.7Others 1.8 2.2 1.3 1.2 1.0 1.3 1.3 1.3 1.7 1.5 1.4 1.3

BNondebt capital receipts

III Gross fiscal deficit -5.3 -4.9 -8.4 -9.2 -9.1 -10.0 -9.4 -9.2 -7.6 -6.8 -6.7 -6.8

Tax CompositionTax CompositionTax CompositionTax Composition20

Other indirect taxes

Service tax

1 11.2

1.82.1

2.22.2

2.42.4

2.4

14

16

18

Se v ce ta

Sales tax

Union excise

Customs

O h di

2.8 2.8

2.83.2

3.53.4

3.4 3.6 3.7 3.84.0 4.1

0 0

0.0

0.30.2

0.20.3

0.50.7

1.1

1.5

1.82.0

2.12.2

2.2

10

12

14 Other direct taxes

Corporate tax

Income tax

3 5 3.60 2 0 2 0.2 0.2 0.20.2 0.1

2 4 3.62.3 1.8 1.8 1.8 1.8 1.8

2.0 2.1

2.43.8

4.54.3

3.33.2 3.4 3.3 3.1 3.1

2.8

1.0

1.7

0.0

0.0

1.2

4

6

8

1.0 1.0 1.0 0.9 1.5 1.4 1.5 1.5 1.6 1.7 1.9 2.00.6 0.8 0.9 0.91.7 1.6 1.9 2.3 2.6 2.8

3.5 3.6

0.7 0.4 0.3 0.3

0.2 0.2 0.21.0 1.1

2.4

0

2

61 71 81 91 01 02 03 04 05 06 7r 8b

1960

-6

1970

-

1980

-

1990

-

2000

-0

2001

-0

2002

-0

2003

-0

2004

-0

2005

-0

2006

-0

2007

-08

Shortfalls in Central Tax CollectionsShortfalls in Central Tax CollectionsShortfalls in Central Tax Collections Shortfalls in Central Tax Collections

Tax collections below targetsTax collections below targets The drop affecting the flow of tax devolution to the St tStates

Tax buoyancy: Centre & StatesTax buoyancy: Centre & StatesTax buoyancy: Centre & StatesTax buoyancy: Centre & States

Stagnation in tax/GDP ratio even prior to theStagnation in tax/GDP ratio even prior to the present recession.

1.140.96 0.93

1.150.94 0.88

1.12 1.04 0.96

1980-81 to 1989-90 1990-91 to 1999-00 2000-01 to 2006-071980 81 to 1989 90 1990 91 to 1999 00 2000 01 to 2006 07

Centre and States combined Central taxes States own taxes

Stagnant NonStagnant Non--tax revenuestax revenuesStagnant NonStagnant Non tax revenuestax revenuesNon-tax revenues of the Centre increased during the 90s,

but not adequate to neutralize the fall in tax revenue.but not adequate to neutralize the fall in tax revenue. Non-tax revenues of the States declined.

The upward trend in 1994-95 and 1995-96 was short-lived.The upward trend in 1994 95 and 1995 96 was short lived.

2 22.6

2.8 2.72.5 2 3 2 4 2.5 2.5 2.7 2.7

3.0 3.0 2.82.5

Centre States Total Nontax Revenue

2.2 2.3 2.4 2.21.9 1.7

1.01.5 1.3 1.4

1.7 1.51.2 1.1 1.0 1.1

0 20.6 0.7 0.7

% o

f GD

P

-0.3 -0.2 -0.2

0.0 0.2

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

1990

-9

1991

-9

1992

-9

1993

-9

1994

-9

1995

-9

1996

-9

1997

-9

1998

-9

1999

-0

2000

-0

2001

-0

2002

-0

2003

-0

2004

-0

2005

-0

2006

-0

2007

-0

Components of NonComponents of Non--tax Revenue: Centretax Revenue: CentreComponents of NonComponents of Non tax Revenue: Centretax Revenue: Centreb_1 (Net Contribution of Public Undertakings) b_2 (Interest Receipts)b 3 (Fiscal Services) b 4 (General Services excluding Defence Receipts)***

2.5%

3.0%

b_3 (Fiscal Services) b_4 (General Services,excluding Defence Receipts)b_5 (Social & Community Services) b_6 (Economic Services) !b_7 (External Grants)

1.5%

2.0%

0.5%

1.0%

-0.5%

0.0%

-75

-76

-81

-86

-91

-96

1re

2be

1974

-

1975

-

1980

-

1985

-

1990

-

1995

-

2000

-01

2001

-02

Components of NonComponents of Non--tax Revenue: Statestax Revenue: StatesComponents of NonComponents of Non tax Revenue: Statestax Revenue: Statesb_1 (Net Contribution of Public Undertakings) b_2 (Interest Receipts)b 3 (General Services) b 4 (Social & Community Services)

2.5%

3.0%

b_3 (General Services) b_4 (Social & Community Services)b_5 (Economic Services) #

1.5%

2.0%

0.5%

1.0%

-0.5%

0.0%

-75

-76

-81

-86

-91

-96

1re

2be

1974

-

1975

-

1980

-

1985

-

1990

-

1995

-

2000

-01

2001

-02

Factors Contributing to rising Central Factors Contributing to rising Central ddGovernment ExpenditureGovernment Expenditure

Rising interest expenditureRising interest expenditureIncreases in defense expenditure Impact of 5th Pay CommissionRising fertilizer/ food subsidiesRising fertilizer/ food subsidies

Pattern of Financing the Fiscal Deficit in the Pattern of Financing the Fiscal Deficit in the late late 9090ss

Indebtedness of the Centre and the States > 65%Indebtedness of the Centre and the States > 65% of GDP in 2000-01

910

More important is its unsustainability (growth of debt > GDP growth)6

789

of G

DP g )

2345

Pece

nt o

01

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01

( ) S S ( ) S ( )Market Borrowings (net) Small Savings (net) State Provident Funds (net)Budget Deficit Others External Financing

Variations In Fiscal Variations In Fiscal P f A SP f A SPerformance Across StatesPerformance Across States

Structural Weakness of State FinancesStructural Weakness of State FinancesStructural Weakness of State FinancesStructural Weakness of State FinancesUncertainty and Variability in the federal resource y y ftransfers. Large electricity/irrigation/transport subsidiesInadequate generation of own resourcesInefficiencies in expenditureRising expenditures mainly due to rising wages and salaries, pensions, subsidies and interest payments. Constraint on investments in education, health, infrastructure, social security and welfare

Increased Growth Dispersion Across States Increased Growth Dispersion Across States dd dd(average % per annum) during (average % per annum) during 8080s and s and 9090ss

10Andhra Pradesh

6

8

10Bihar

GujaratUttar Pradesh

West Bengal

2

4

HaryanaTamil Nadu

0

KarnatakaRajasthan

KeralaPunjab

80s90s

Madhya Pradesh

Maharashtra

Orissa

Trends in the Fiscal Deficit/Trends in the Fiscal Deficit/GSDPGSDP ratio in ratio in 14 14 Major StatesMajor States

7%Andhra Pradesh

4%5%6%7%

Bihar

GujaratUttar Pradesh

West Bengal

1%2%3%4%

HaryanaTamil Nadu

0%

KarnatakaRajasthan

KeralaPunjab19952000

Madhya Pradesh

Maharashtra

Orissa

PercapitaPercapita income income vsvs fiscal deficit/fiscal deficit/GSDPGSDP ratio ratio ddin in 14 14 major States of Indiamajor States of India

12 Orissa

10Bihar

Orissa

R j th

West Bengal

6

8

it/ G

SDP

(%)

Rajasthan

Uttar PradeshGujarat

Punjab

4

6

Fisc

al d

efic

i

Maharashtra

Andhra Pradesh

Karnataka KeralaMadhya Pradesh

Tamil Nadu

Punjab

Haryana

2

00 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Percapita income (INR)

Own revenue/ Total expenditure & Fiscal Own revenue/ Total expenditure & Fiscal d /d / dddeficit/ deficit/ GSDPGSDP in in 14 14 major States in Indiamajor States in India70

50

60

%)

HaryanaMaharashtraKarnataka

Kerala

Tamil Nadu Gujarat

Punjab

40

50

otal

exp

endi

ture

(%

Andhra PradeshRajasthan

Kerala

Madhya Pradesh

20

30

Ow

n re

sour

ces/

To

Bihar

Orissa

West BengalUttar Pradesh

10

20O

00 2 4 6 8 10 12

Fiscal deficit/ GSDP (%)

Share of developmental expenditure in total: Share of developmental expenditure in total: ddThe Shrinking Trend in the in The Shrinking Trend in the in 14 14 major Statesmajor States

Andhra Pradesh

BihW t B l

65%

70%

75%Bihar

GujaratUttar Pradesh

West Bengal

50%

55%

60%

65%

HaryanaTamil Nadu

50%

KarnatakaRajasthan

Late 80s

Kerala

M dh P d hO i

Punjab

Late 80sEarly 90sLate 90s

Madhya Pradesh

Maharashtra

Orissa

States Efforts to overcome States Efforts to overcome fi l ifi l ifiscal constraintsfiscal constraints

Fiscal restructuring at the States’ level to focus Fiscal restructuring at the States’ level to focus on on

Revenue mobilization, through better tax collection and rationalizing taxesrationalizing taxes Revising user charges specially for power, water and transportBetter expenditure management

d /for example, downsizing the Government by abolition/freezing of posts Enhance expenditure efficiencyCompressing non-Plan revenue expendituresPSU reforms: Closure/ disinvestment Infrastructure developmentInfrastructure developmentSector reforms: Competition/ Regulation

Priorities for FurtherPriorities for Further ReformsReformsPriorities for Further Priorities for Further ReformsReforms

Revenue side reformsRevenue side reformsRevenue side reformsRevenue side reforms

Coordination of central excises (CENVAT) with aCoordination of central excises (CENVAT) with a state level VAT Implement comprehensive taxation of services at theImplement comprehensive taxation of services at the earliest.

Expenditure side reformsExpenditure side reformsExpenditure side reformsExpenditure side reforms

Reduce non Pl n expenditures through cont inment ofReduce non-Plan expenditures through containment of wage billReform the subsidies (reduction in size making them ofReform the subsidies (reduction in size, making them of finite duration, making them transparent and proper targeting.)g g )Review user charges in agriculture, irrigation, industries, power and transport.Use the proceeds of disinvestment in public enterprise to amortize public debt.

Thank You!Thank You!Thank You!Thank You!

ReferencesReferencesReferencesReferences

1) Raja J Chelliah (1999) Economic Reform1) Raja J Chelliah (1999) Economic Reform Strategy for the Next Decade Considerations for D t i i th Di ti fDetermining the Directions of Reforms, EPW, September 4.2) Bagchi, Amaresh et al (1994): Reform of Domestic Trade Taxes in India: Issues andDomestic Trade Taxes in India: Issues and Options, National Institute of Public Finance and Policy New DelhiPolicy, New Delhi.3) Acharya, Shankar (2005) Thirty Years of

ReferencesReferencesReferencesReferences

6) Stephen Howes and Rinku Murgai6) Stephen Howes and Rinku Murgai()Subsidies And Salaries: Issues In The R t t i Of G t E p dit IRestructuring Of Government Expenditure In India8) Sarma E A S and Sarma J V M (2002) Financing government expenditure for sustainableFinancing government expenditure for sustainable development in India, Swedish Embassy, New DelhiDelhi.