Montek: Come clean on fiscal deficit, spend more, simplify GST

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The government should come clean on its fiscal position, spend more and simplify Goods and Services Tax (GST) to steer the economy out of its current crisis, former deputy chairman of erstwhile Planning Commission Montek Singh Ahluwalia said at the Mint Budget 2021 live panel discussion on Monday.

Ahluwalia said at the discussion on ‘reviving India’s Covid-hit economy’ that it was not the time to worry about budget targets, which have become irrelevant in India as has happened everywhere else in the world.

Ahluwalia highlighted the need for spending more to limit the economic contraction to a projected 7.7% this fiscal and suggested the government should build infrastructure to stimulate private investment.

He said the latest Central Statistics Office projection of a 7.7% GDP contraction in the current year assumes a huge increase in government consumption expenditure. “But we must know that figures after October do not show that. If you want to limit the contraction to 7.7%, that implies an expenditure boost in the rest of the current year. The finance minister in her statements has said she was going to spend without too much regard to what it would do to the fiscal deficit in the current year. I think that is correct. We have to see how the budget numbers come out.”

“It is time to come clean,” Ahluwalia said, adding that he would “very earnestly suggest that this is the best time in the world for the finance minister to” acknowledge that it was not the time to stick to 3.5% fiscal deficit target in the face of a huge decline in GDP and loss of revenue. He said that the government should be upfront about off-budget spending too. The Centre’s fiscal deficit could be 6.5% plus, to which off-budget items should be added, and it could easily come to “between 7% and 8%, Ahluwalia said, adding that states’ fiscal deficit was in addition to this.

The tendency to defer paying bills which results in reduced expenditure was not the right thing to do. For the next fiscal, the bounce back in revenue may not be sufficient and the government could take many more specific steps to boost revenue receipts, he said.

Ahluwalia suggested that there were things finance minister Nirmala Sitharaman could do on the tax front in the budget as well as outside. For example, she could take proposals to the GST Council for reforming the indirect tax system. “The finance minister could take the proposal for a massive simplification of GST to the GST Council and do what the experts are saying would be the way to get more revenues. And in addition to that of course, is asset sales,” said Ahluwalia.

Ahluwalia said that the government should have been more generous to the poor and should make sure funds are released to states for the rural employment guarantee scheme so that no state falls short in offering rural jobs for want of funds. He also suggested that the central government should cover the entire cost of the vaccination programme, not just for the first 300 million people.

“I agree that infra is probably the one area, where the government ought to be doing more if you need a private investment led recovery. Sooner or later, the private investor will get into the act. That is not when the government should be getting into the act competitively and producing the same thing. It should be in the act creating the infrastructure needed to stimulate that kind of private investment,” said Ahluwalia.

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