New Delhi, Feb. 28: Finance minister Jaswant Singh’s budget lays a major emphasis on fiscal consolidation to nurse the economy into a more robust state of health.
Finance secretary S. Narayan told journalists that fiscal consolidation is a priority area and the budget aims to achieve this by increasing tax revenue, restricting expenditure and innovative debt management. The budget proposes to bring down the fiscal deficit to 5.6 per cent of GDP from the revised estimate of 5.9 per cent for 2002-03.
He said that the revenue would be enhanced through better tax administration. During 2002-03, although tax revenue had grown by 17 per cent, the figure had fallen short of the 32 per cent target which was too ambitious.
The new budget has scaled down the target to a more realistic level and would aim at mopping up Rs 184,169 crore in taxes which is 12 per cent higher than the Rs 164,177 estimate for tax collections in 2002-03. The government, however, was confident of exceeding this targets, he added. The casting of a wider tax net on services is expected to yield Rs 8,000 crore compared with the Rs 5,000 revised estimate for 2003-03.
The administrative reforms introduced in the budget stem essentially from the recommendations of the Kelkar committee on tax reforms. The present discretion-based system for selection of returns for scrutiny will be replaced by a computer generated intelligent, random selection of only 2 per cent of the returns in a year.
A simple one-page form will be introduced for individual tax payers with incomes from salary, house property and interest. The income-tax Act is also being amended to provide for electronic filing of returns.
Any Indian citizen going abroad will now have to will now have to furnish his PAN and the duration of the intended visit to the emigration authorities. The need for tax clearance certificates has been done away with.
The procedure and methods employed for search and seizure during income tax raids has also been simplified. Stocks found during such raids will not be seized under any circumstances. No confession will be obtained during the raid. No survey operation will be authorised by any officer below the rank of joint commissioner of income tax. Books of account impounded during survey will not be retained beyond 10 days without the approval of the chief commissioner.
The country is reeling under a high debt burden and as much as 48.8 per cent of the government's revenue in 2002-03 went towards interest payments to the tune of Rs 115, 663 crore.
The finance minister also proposes to leverage the strong foreign exchange reserves kitty to proactively liquidate the relatively high cost component of the country's external debt portfolio. As a step in this direction loans to the tune of $ 3 billion picked up from the World Bank and Asian Development have already been repaid.
As far as the government's domestic debt is concerned a large portion is held with banks at a very high rates of interest. These debt instruments are very thinly traded.
However, with the fall in interest rates such loans should command a premium over their face value. The budget proposes to offer a buyback of such loans from banks that are in need of liquidity. Alternatively they may want to encash the premium to provide for their non-performing assets which in turn will help to improve their balance sheets.
The crushing debt burden of the state governments is also proposed to be brought down through a debt-swap scheme floated in the budget. The finance minister said that over a three-year period ending 2004-05, all state loans to the Government of India bearing a rate of interest of over 13 per cent will have been swapped for cheaper loans from small savings and the open market. This is expected to result in a saving of Rs 81,000 crore in interest and deferred loan payments for the states.
The budget further proposes to bring in a better cash management system to control expenditure.
At present, cash becomes available to the ministries up to the budget ceiling as soon as the appropriation bill is passed in parliament. This will be replaced by monthly or quarterly cash limits based on the actual requirements of the ministries. This will help to avoid the mis-matches between receipts and expenditure and the rush of wasteful expenditure in the last quarter of each year.