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Government attempts financial jugglery to tame deficit - Views on News from Equitymaster
 
 
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  • Nov 15, 1999

    Government attempts financial jugglery to tame deficit

    According to newspaper reports, the Finance Ministry is planning to use the collections from the cess on petrol and diesel to meet the fiscal deficit target for the current year. The collections under this head are estimated to be in the region of Rs 58 bn during the fiscal year.

    The central government is currently engulfed in a situation in which it is faced with burgeoning expenditure and lower tax base. As a consequence, the government in all likelihood will overshoot the fiscal deficit target of 4% of GDP.

    The government has on its part initiated measures to beef up its revenues. It has proposed to sell off some power plants, transmission lines and also speeden up the disinvestment process. However, there is no surety whether the government may be able to go through with these measures. It has therefore adopted the tried and trusted measure of financial jugglery. This time it has proposed to transfer the funds raised from the cess imposed on petroleum products to meet the fiscal deficit. The funds were initially meant to finance the road fund.

    The measure is at best an eyewash. The move may however have some serious consequences for investments in the road sector. The funds raised for capital expenditure purposes are being used to finance a deficit that is mainly caused by large revenue expenditure. This will have an adverse impact on the economy, as investment activity will suffer. Infact, given the relative infancy of the economic recovery, efforts should be made to step up investment activity.

     

     

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