RELEVANCE OF FISCAL POLICY

NATIONAL ECONOMIC PLANNING

NEP, RELEVANCE OF FISCAL POLICY – 2007 (IIPM, Hyderabad) COPYRIGHTEDCOPYRIGHTED

Substantiating the Fiscal Oversight






First seen in during the Era of Harappa Culture (3300 BC to 1600 BC)


The Initiation of Modern Fiscal Policy(14th AD to 17th AD) (RENAISSANCE)



Income, Output

Y =

E

E

Y

E = C(Y-T) + I + G




STABILIZE BY CONTROL

DEVELOP BY REGULATION


GROW TO DEVELOP

BACK TO SQUARE ONE – DEVELOP BY HIGH REGULATION


Ohh.. GOD ‘S WHAT’S WRONG WITH THE POLICIES – ECONOMICAL CRISIS


ADOPT WHAT OTHERS DID – (No Other way Left) BUT STILL FOLLOW OWN STYLE


INDIA IS ALREADY CONFUSED DO WHATEVER YOU WANT TO DO




12TH Largest Economy in the World as per GDP in US DOLLARS

3RD Largest Economy in the World as per GDP in US DOLLAR

(PURCHASING POWER PARITY)

2ND Fast Growing MAJOR ECONOMY @ 9.2 %

TRILLION DOLLAR ECONOMY.

* Sources : Worldbank.org


* Sources : RBI YEAR REPORT 2006 - 2007










* Sources : CENSUS REPORT 2001


* Sources : CENSUS REPORT 2001







India has the largest paramilitary force in the world.

Indian Army is the third-largest army in the world.

Indian Air Force is the fourth-largest air force in the world.

Indian Navy is the fifth largest in the world.

India is Ranked the 6th Country in the World in Terms of Satellite Launches.

Of the Fortune 500 companies, 220 outsource their Software-related work to India.

There are over 70,000 Bank Branches in India - among the highest in the World.

The Kumbh Mela Festival, attracts 25 million people (more than the Population of 185 of the 227 Countries in the World).





Economy to Grow at 9.4 (GDP)

Total Revenue to stand at 6,80,521 @ 14.69 % growth.

Fiscal Deficit to stand at 1,44,950 (3.13 of GDP) (net) (Rs. Crores)

Average Inflation in FY'08 to be 4 – 4.5 %



All Pvt. & Public Sector Banks which have more than 200 Branches necessarily need open 10 New Branches in Rural Areas of Each State by End Financial year 2010.

Allocation for Education to be Enhanced by 22.5 % (from 19.7 %).

State Govts. (Combined) need to be given an estimated Rs. 2300 Crores for Water Management & Special Team for Monitoring to be setup.

Ad valorem Duty on Petrol & Diesel should to be brought down from 8 % to 5 % & remain Stable for next 2 Yrs.


Allocation on Healthcare should be Increased by 22.5 % from Previous Year. (50 % Compulsory for Rural Areas)

Benefits for Investing in Venture Capital Funds Confined to Heavy Engineering, Manufacturing & Electricity Generation.

An Investment of Rs. 275 Crore for R&D in the Field of Agricultural Research.

Tourism Infrastructure needs to be allotted an Amount of Rs. 600 Crores. (Rs.520 Crore 07’- 08’)


The Quality of Public Expenditures has Deteriorated

– can rationalize Govt. through

Internal Restructuring

Privatization

Subsidy Reduction

Better Management of Pay and Pensions.



Interest on Loans may be Subsidized.

Loans may be Rescheduled.

Loan Guarantees can Serve as a Subsidy also.



Systemic Reform is Complex and Difficult, even when done

Piecemeal.

Diversity and Regional Inequality create Political Hurdles and

Exacerbate Internal Political Tensions

Need to Build New Political Coalitions for Governmental

Reforms.


Several other Simultaneous Developments Heighten the

Challenges:

Major Local Government Reform.

Liberalization and move away from Govt. Intervention,

including Re-evaluation of Govt. Economic Planning.

Red Tape & Corruption.


Year Center States Consolidated Total Revenue Primary 1990-91 6.6 3.3 9.4 4.2 5.0 1991-92 4.7 2.9 7.0 3.4 2.3 1992-93 4.8 2.8 7.0 3.2 2.1 1993-94 6.4 2.4 8.3 4.3 3.3 1994-95 4.7 2.7 7.1 3.7 1.9 1995-96 4.2 2.6 6.5 3.2 1.6 1996-97 4.1 2.7 6.4 3.6 1.3 1997-98 4.8 2.9 7.3 4.1 2.1 1998-99 5.1 4.2 9.0 6.4 3.7 1999-00 5.4 4.6 9.6 6.3 3.9 2000-01 5.7 4.3 9.8 6.6 4.0 2001-02 6.1 4.2 9.9 6.9 3.7 2002-03 5.9 4.7 9.6 6.7 3.1 2003-04 4.5 4.4 8.5 5.8 2.1 2004-05 (RE)* 4.0 4.0 8.4 4.1 2.3 2005-06 (BE)** 4.1 3.1 7.7 3.4 1.8 2006-07 (BE) 3.8 n.a. n.a. n.a. n.a.



YEAR DEBT (% OF GDP)

1990 – 1991 49.8 %

1995 – 1996 46.7 %

2001 – 2002 56.8 %

2002 – 2003 61.0 %

2003 – 2004 61.1 %

2004 – 2005 61.8 %

2005 – 2006 60.7 %

2006 – 2007 (RE) 59.0 %

2007 – 2008 (BE) 56.* %





Years Per Capita Transfers (1993-94 Rupees)

Percentage of transfers

to GDP

Percentage of transfers to Central Revenues


to State Revenues


to State Expenditure

1975-76 198.2 3.67 31.80 38.64 44.80 1980-81 272.2 4.84 34.80 43.81 47.50 1985-86 381.0 5.55 40.98 45.62 46.42 1990-91 449.9 4.66 39.06 38.37 30.85 1995-96 450.8 4.28 36.53 38.61 31.07 1996-97 487.0 4.28 36.35 39.97 31.83 1997-98 578.0 4.86 43.66 44.91 35.33 1998-99 469.9 3.73 34.46 37.69 26.29 1999-00 504.1 3.80 32.62 36.46 25.05 2000-01 580.1 4.41 35.38 37.41 26.92 2001-02* 633.1 4.49 35.80 38.02 28.30

Note: * Revised estimates Source: Indian Economic Statistics/ Public Finance Statistics. Ministry of Finance, Government of India


Decentralization to Local Level.

Improve Accountability.

Substitute the ‘Voice’ for Hierarchical Control.

Move Regulation & Monitoring of Local Govts. from

Discretion to Rules & Outcome-based Approach.

Need Greater Assignment of Revenue Authority to

Local Govts.


Constitutional Amendments, in 1993, Strengthened Local Govt.

Substitute ‘Voice’ for Hierarchical Control – this will take time

to develop fully.

Move Regulation and Monitoring of Local Govts. from case-by-

case Discretion towards Rules & Outcome based approach.


www.indiabudget.nic.in www.indiastat.com www.wikipedia.org www.google.com www.googlescholar.com RBI Report 2007 http://fincomindia.nic.in http://planningcommission.nic.in

http://econstats.com http://www.censusindia.gov.in http://www.indexmundi.com www.worldbank.org.in www.rediff.com http://www.hinduonnet.com/fline/fl1718/17181090.html http://imf.org/external/np/seminars/eng/2004/fiscal/pdf/heller.pdf

http://www.indiabudget.nic.in/

http://www.indiastat.com/

http://www.wikipedia.org/

http://www.google.com/


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RELEVANCE OF FISCAL POLICY