Recently, the Kelkar Committee published a roadmap for fiscal consolidation. The report stresses the need and urgency to address India’s fiscal deficit. A high fiscal deficit – the excess of government expenditure over receipts – can be problematic for many reasons. The fiscal deficit is financed by government borrowing; increased borrowing can crowd out funds available for private investment. High government spending can also lead to a rise in price levels. A full PRS summary of the report can be found here. Recent fiscal trends Last year (2011-12), the central government posted a fiscal deficit of 5.8% (of GDP), significantly higher than the targeted 4.6%. This is in stark contrast to five years ago in 2007-08, when after embarking on a path of fiscal consolidation the government’s fiscal deficit had shrunk to a 30 year low of 2.5%. In 2008-09, a combination of the Sixth Pay Commission, farmers’ debt waiver and a crisis-driven stimulus led to the deficit rising to 6% and it has not returned to those levels since. As of August this year, government accounts reveal a fiscal deficit of Rs 3,37,538 crore which is 65.7% of the targeted deficit with seven months to go in the fiscal year. With growth slowing this year, the committee expects tax receipts to fall short of expectations significantly and expenditure to overshoot budget estimates, leaving the economy on the edge of a “fiscal precipice”.
Figure 1 (source: RBI)
Committee recommendations - expenditure To tackle the deficit on the expenditure side, the committee wants to ease the subsidy burden. Subsidy expenditure, as a percentage of GDP, has crept up in the last two years (see Figure 2) and the committee expects it to reach 2.6% of GDP in 2012-13. In response, the committee calls for an immediate increase in the price of diesel, kerosene and LPG. The committee also recommends phasing out the subsidy on diesel and LPG by 2014-15. Initial reports suggest that the government may not support this phasing out of subsidies.
Figure 2 (source: RBI, Union Budget documents, PRS)
For the fertiliser subsidy, the committee recommends implementing the Department of Fertilisers proposal of a 10% price increase on urea. Last week , the government raised the price of urea by Rs 50 per tonne (a 0.9% increase). Finally, the committee explains the rising food subsidy expenditure as a mismatch between the issue price and the minimum support price and wants this to be addressed. Committee recommendations - receipts Rising subsidies have not been matched by a significant increase in receipts through taxation: gross tax revenue as a percentage of GDP has remained around 10% of GDP (see Figure 3). The committee seeks to improve collections in both direct and indirect taxes via better tax administration. Over the last decade, income from direct taxes – the tax on income – has emerged as the biggest contributor to the Indian exchequer. The committee feels that the pending Direct Tax Code Bill would result in significant losses and should be reviewed. To boost income from indirect taxes – the tax on goods and services – the committee wants the proposed Goods and Service Tax regime to be implemented as soon as possible.
Figure 3 (source: RBI)
Increasing disinvestment, the process of selling government stake in public enterprises, is another proposal to boost receipts. India has failed to meet the disinvestment estimate set out in the Budget in the last two years (Figure 4). The committee believes introducing new channels [1. The committee suggests introducing a ‘call option model’. This is a mechanism allowing the government to offer for sale multiple securities over a period of time till disinvestment targets are achieved. Investors would have the option to purchase securities at the cost of a premium. They also propose introducing ‘exchange traded funds’ which would comprise all listed securities of Central Public Sector Enterprises and would provide investors with the benefits of diversification, low cost access and flexibility.] for disinvestment would ensure that disinvestment receipts would meet this year’s target of Rs 30,000 crore.
Figure 4 (source: Union Budget documents, PRS)
Taken together, these policy changes, the committee believe would significantly improve India’s fiscal health and boost growth. Their final projections for 2012-13, in both a reform and no reform scenario, and the medium term (2013-14 and 2014-15) are presented in the table below: [table id=2 /]
In Budget Session 2018, Rajya Sabha has planned to examine the working of four ministries. The Ministry of Drinking Water and Sanitation is one of the ministries listed for discussion. In this post, we look at the key schemes being implemented by the Ministry and their status.
What are the key functions of the Ministry of Drinking Water and Sanitation?
As per the Constitution, supply of water and sanitation are state subjects which means that states regulate and provide these services. The Ministry of Drinking Water and Sanitation is primarily responsible for policy planning, funding, and coordination of programs for: (i) safe drinking water; and (ii) sanitation, in rural areas. From 1999 till 2011, the Ministry operated as a Department under the Ministry of Rural Development. In 2011, the Department was made an independent Ministry. Presently, the Ministry oversees the implementation of two key schemes of the government: (i) Swachh Bharat Mission-Gramin (SBM-G), and (ii) National Rural Drinking Water Programme (NRDWP).
How have the finances and spending priorities of the Ministry changed over time?
In the Union Budget 2018-19, the Ministry has been allocated Rs 22,357 crore. This is a decrease of Rs 1,654 crore (7%) over the revised expenditure of 2017-18. In 2015-16, the Ministry over-shot its budget by 178%. Consequently, the allocation in 2016-17 was more than doubled (124%) to Rs 14,009 crore.
In recent years, the priorities of the Ministry have seen a shift (see Figure 1). The focus has been on providing sanitation facilities in rural areas, mobilising behavioural change to increase usage of toilets, and consequently eliminating open defecation. However, this has translated into a decrease in the share of allocation towards drinking water (from 87% in 2009-10 to 31% in 2018-19). In the same period, the share of allocation to rural sanitation has increased from 13% to 69%.
What has been the progress under Swacch Bharat Mission- Gramin?
The Swachh Bharat Mission was launched on October 2, 2014 with an aim to achieve universal sanitation coverage, improve cleanliness, and eliminate open defecation in the country by October 2, 2019.
Expenditure on SBM-G: In 2018-19, Rs 15,343 crore has been allocated towards SBM-G. The central government allocation to SBM-G for the five year period from 2014-15 to 2018-19 has been estimated to be Rs 1,00,447 crore. Of this, up to 2018-19, Rs 52,166 crore (52%) has been allocated to the scheme. This implies that 48% of the funds are still left to be released before October 2019. 
Construction of Individual Household Latrines (IHHLs): For construction of IHHLs, funds are shared between the centre and states in the 60:40 ratio. Construction of IHHLs account for the largest share of total expenditure under the scheme (97%-98%). Although the number of toilets constructed each year has increased, the pace of annual growth of constructing these toilets has come down. In 2015-16, the number of toilets constructed was 156% higher than the previous year. This could be due to the fact that 2015-16 was the first full year of implementation of the scheme. The growth in construction of new toilets reduced to 74% in 2016-17, and further to 4% in 2017-18.
As of February 2018, 78.8% of households in India had a toilet. This implies that 15 crore toilets have been constructed so far. However, four crore more toilets need to be construced in the next 20 months for the scheme to achieve its target by 2019.
Open Defecation Free (ODF) villages: Under SBM-G, a village is ODF when: (i) there are no visible faeces in the village, and (ii) every household as well as public/community institution uses safe technology options for faecal disposal. After a village declares itself ODF, states are required to carry out verification of the ODF status of such a village. This includes access to a toilet facility and its usage, and safe disposal of faecal matter through septic tanks. So far, out of all villages in the country, 72% have been verified as ODF. This implies that 28% villages are left to be verified as ODF for the scheme to achieve its target by 2019.
Information, Education and Communication (IEC) activities: As per the SBM-G guidelines, 8% of funds earmarked for SBM-G in a year should be utilised for IEC activities. These activities primarily aim to mobilise behavioural change towards the use of toilets among people. However, allocation towards this component has remained in the 1%-4% range. In 2017-18, Rs 229 crore is expected to be spent, amounting to 2% of total expenditure.
What is the implementation status of the National Rural Drinking Water Programme?
The National Rural Drinking Water Programme (NRDWP) aims at assisting states in providing adequate and safe drinking water to the rural population in the country. In 2018-19, the scheme has been allocated Rs 7,000 crore, accounting for 31% of the Ministry’s finances.
Coverage under the scheme: As of August 2017, 96% of rural habitations have access to safe drinking water. In 2011, the Ministry came out with a strategic plan for the period 2011-22. The plan identified certain standards for coverage of habitations with water supply, including targets for per day supply of drinking water. As of February 2018, 74% habitations are fully covered (receiving 55 litres per capita per day), and 22% habitations are partially covered (receiving less than 55 litres per capita per day). The Ministry aims to cover 90% rural households with piped water supply and 80% rural households with tap connections by 2022. The Estimates Committee of Parliament (2015) observed that piped water supply was available to only 47% of rural habitations, out of which only 15% had household tap connections.
Contamination of drinking water: It has been noted that NRDWP is over-dependant on ground water. However, ground water is contaminated in over 20 states. For instance, high arsenic contamination has been found in 68 districts of 10 states. These states are Haryana, Punjab, Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, West Bengal, Assam, Manipur, and Karnataka.
Chemical contamination of ground water has also been reported due to deeper drilling for drinking water sources. It has been recommended that out of the total funds for NRDWP, allocation for water quality monitoring and surveillance should not be less than 5%. Presently, it is 3% of the total funds. It has also been suggested that water quality laboratories for water testing should be set up throughout the country.
