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X. FISCAL CONSOLIDATION
Indian Budget 2005-06
Full Text of P. Chidambaram, Minister of Finance, Budget Speech(Feb 28, 2005)
99. The current phase of high growth provides us an opportunity that should not be frittered away. We must use this opportunity to improve the fiscal health of the country. We must increase our revenues and reorient expenditure to pay for more outlays on education, health and infrastructure.
Outlays versus Outcomes
100. At the same time, I must caution that outlays do not necessarily mean outcomes. The people of the country are concerned with outcomes. The Prime Minister has repeatedly emphasized the need to improve the quality of implementation and enhance the efficiency and accountability of the delivery mechanism. During the course of the year, together with the Planning Commission, we shall put in place a mechanism to measure the development outcomes of all major programmes. We shall also 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. Civil society should also engage Government in a healthy debate on the efficiency of the delivery mechanism.
Subsidies
101. Following my announcement last July, I placed before Parliament a report on Central Government subsidies. There are three main products that involve large explicit subsidies from the Budget and otherwise. These are food, fertilizer and petroleum. Subsidies provide a measure of protection for the poor and we shall continue to provide subsidies. However, we must now take up the task of restructuring the subsidy regime in a cautious manner and after a thorough discussion.
102. The Ministry of Agriculture intends to make procurement of food grains more cost effective through decentralized procurement, especially in the non-traditional States, without impairing the present MSP-based procurement. A Working Group constituted by the Department of Fertilizers is now examining several issues for implementing the next stage of the New Pricing Scheme for fertilizers commencing from April 1, 2006. The fertilizer subsidy bill could be pruned if naphtha and FO/LSHS, now used as feedstock, are replaced by natural gas. As far as petroleum products are concerned, the Government has received the recommendations of the Lahiri Committee, and appropriate decisions have been taken, to which I shall refer in Part B of my speech.
103. What gives me satisfaction is that, while faithfully attempting to implement the mandate of the NCMP, I have been able to remain on the path of fiscal consolidation. According to the revised estimates for 2003-04, the revenue deficit was 3.6 percent and the fiscal deficit was 4.8 per cent of GDP. The FRBM Act requires a reduction in the two ratios, respectively, of 0.5 per cent and 0.3 per cent every year. I am happy to inform the House that we will achieve this degree of fiscal correction in 2004-05, and the year is expected to end with a revenue deficit of 2.7 per cent and a fiscal deficit of 4.5 per cent of GDP.
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