ASSOCHAM for increasing tax GDP ratio

New Delhi, June 15: Besides plugging distortions and leakages in its expenditure plans, the Finance Ministry needs to enhance its tax GDP ratio to over 15 per cent, to help India get over its major public finance crisis, an ASSOCHAM paper said here today.

The paper on 'Reforming Management of India's Expenditure' highlighted that out of the total budgeted expenditure of Rs 5,63,991 crore for 2006-07 about 15 per cent would go waste in terms of subsidies extension in areas of food, fertiliser and petroleum products, as the targeted audience hardly gains out of it.

India currently faces a major public finance crisis as the combined fiscal deficit of the Central and state governments alone add up to over 10 per cent of the GDP.

As a consequence of the continuing high fiscal deficit, the combined outstanding liability of the Central and state governments rose from 67.8 per cent of the GDP at the end of 1990-91 to 75 per cent of the GDP at the end of 2000-01 and to 87.1 per cent at the end of 2003-04.

Including the debt of public enterprises, total public debt is now 110 per cent of the GDP with contingent liability from loss making public enterprises alone adding up to 13-14 per cent of the GDP.

Therefore, the Finance Ministry needs to save money through elimination of distortions and leakages in its expenditures and raise additional rupee through taxation.

The budgeted expenditure of Finance Ministry for 2005-06 were Rs 514.344 crore of which the fertiliser subsidy went to over Rs 17,000 crore, food subsidy about Rs 30,000 crore and petroleum subsidy around Rs 6,000 crore. A major portion of the aforesaid subsidies did not reach the targeted level and satisfied the higher expenditure groups in urban areas and therefore proved to be regressive, the Chamber said.

It also pointed out as to why the government should help public enterprises in financing and investments and suggested that their financing needs should be met through open market offers or by commercial borrowings raised by themselves only.

The public enterprises should be encouraged to borrow directly from the market on commercial terms and updated 'General Financial Rules' with focus on greater delegation of authority to administrative ministries in managing their financial affairs, it added.

It suggested a multi-pronged strategy to help the government come out of its public finance crisis by way of putting up a mechanism to measure the development outcomes of all major programmes.

It also called for carrying out a review of the quality of investment and of its outcomes, and for this purpose all departments would be required to make benefit-incidence analyses and ensure that programmes and schemes are not allowed to continue indefinitely from one plan period to the next without an independent and in-depth evaluation.

UNI