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 /]
One of the main tasks of the Parliament is to frame laws through debate and discussion on the floor of the House. However, there have been repeated instances where Bills introduced by the government have been passed without substantive discussion (For news reports, click here and here). Even where Bills are debated extensively, occasions where the government introduces changes in the Bill directly as a response to Parliamentary debate are hard to find.
One recent exception is the list of amendments introduced to the National Green Tribunal Bill, 2010 by the Minister for Environment and Forests directly in response to issues raised on the floor of the House.
The Bill
The National Green Tribunal Bill, 2009 aims to set up specialised environmental courts in the country. It will hear initial complaints as well as appeals from decisions of authorities under various environmental laws. The Tribunal shall consist of both judicial and expert members. Expert members have to possess technical qualifications and expertise, and also practical experience.
The Tribunal shall hear only ‘substantial question relating to the environment’. Substantial questions are those which (a) affect the community at large, and not just individuals or groups of individuals, or (b) cause significant damage to the environment and property, or (c) cause harm to public health which is broadly measurable.
PRS in its analysis of the original (unamended) Bill, had raised the following issues (for detailed analysis, clickhere) :
The Debate
In the debate on the Bill in the Lok Sabha on April 21, 2010 a number of MPs raised substantive issues with respect to the Bill. Some of the issues raised were (From the news article quoted above):
1. The Bill fell short on parameters of “scope, efficiency, and access to justice”.
2. Setting up five benches while barring the jurisdiction of courts will “create huge distance for the poor community members and tribals to seek justice”.
3. Offenses under the Wildlife Protection Act and the Wildlife Protection Act will not be heard by the Tribunal.
4. “Section 15 puts an embargo against [persons] other than retired Judge of Supreme Court or Chief Justices of High Court. The other clause puts 15 years of administrative experience, which would open the path for packing the Tribunal with bureaucrats of the kind who did not enforce the environment related laws in their time in service.”
The Minister acknowledged the contribution of the members by stating that: “The members have made important suggestions. Even though their exact demands may not be part of the official amendments moved by the government… but I am open to their suggestions…I will remove all objectionable clauses or sections in the proposed law and keep the window of discussion open.”
The Minister’s response
In response to these issues, the Minister Mr. Jairam Ramesh introduced 10 amendments to the Bill on April 30, 2010. Though not all the issues raised were addressed, a number of changes were made. In addition, the Minister also assured the House that issues regarding access would be addressed by the government by following a “circuit” approach for the benches of the Tribunal i.e. the benches would travel around the area within their jurisdiction to hear complaints. (To read the response, click here, page 15250)
Some of the main amendments are:
1. Now any aggrieved person can can approach the Tribunal. Earlier limited access was provided.
2. The whole Act will be operational by notification at the same time. Different provisions will not be enforced separately at different points of time.
3. There is a procedure for direct appeal to the Supreme Court from the judgement of the Tribunal.
4. The number of expert and judicial members is clearly specified.
In addition, the Minister also assured that the Selection Committee for picking the members of the Tribunal will be transparent and will ensure that members are not “a parking place for retired civil servants”.
