Fiscal Marksmanship

0 In 2003, Government had enacted an act called fiscal

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responsibility and budget Management (FRBM) Act . This FRBM act stipulated that Government will reduce its fiscal deficit. The original target was that fiscal deficit should be only 3% of the GDP for the year 2008-09. And similarly Revenue deficit should be 0% of the GDP for the year 2008-09. But actually for 2008-09 the fiscal deficit around 6% of the GDP! (instead of the target of 3%). That means, Governments gunman (finance minister) fired a bullet but instead of hitting 3%, it hit 6%. That means Governments fiscal marksmanship was poor (because they cant hit the target precisely).

Why Poor Marksmanship

0 How can Government overshoot the (fiscal deficit) target? 0 Well, fiscal deficit will happen when Governments

outgoing money is more than its incoming money. 0 Recall that in 2007, subprime crisis happened in USA and its shocks were felt on every country, including India: export declined, business activity declined.So, Government had to take some initiative to protect Indian economy from further damage. 0 Therefore Government decreased excise duty, decreased the service tax + offered many tax incentives to businessmen, to boost demand of Indian products and services within India and abroad. 0 (=incoming money of Government reduced). Thus, Government missed the Revenue collection target (first proof of poor fiscal marksmanship.)

Cont,,,
0 On the other hand outgoing money was high because

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MNREGA and other welfare schemes. (+ the lot of that money did not go to actual poor people. So such schemes did not show the desired positive result on the economy.) Subsidies on petrol, diesel, LPG, Urea etc. Since 2009s general election was coming, so Government wanted to woo the farmers. So it gave debt waiver to farmers = again outgoing money increased. Government increased minimum support prices (MSP) to farmers for sugar, wheat etc. In other words, Government overshot (missed) the expenditure target (second proof of poor fiscal marksmanship.)

Cont..
0 And since Government already missed the first two targets

(Revenue collection and Expenditure) so obviously third target (fiscal deficit) was going to be missed. 0 Thus in 2008-09 Government could not show its sharp / precise / accurate fiscal marksmanship. 0 To put this concept in refined words= Government overshot the deficit targets in 2008-09 to obviate the adverse impact of the global financial crisis and to give largesse on the eve of the 2009 general elections. 0 Anyways that was the story of 2008-09, but even in 201112, Government was showing signs of poor fiscal marksmanship because.next slide

Cont.
0 Policy paralysis in last two years. Combine this with slowdown in Europe=our (export) sector is not performing good, GDP is going down, => low tax collection. 0 Disinvestment targets could not be met because markets response was lukewarm. (Meaning Government wanted to sell its shares of some PSU but private players were not interested in buying them at high price). 0 Inflation continued to be above 7 per cent= again higher subsidy payments, lower tax collection. 0 high inflation = people opting for gold-purchase as safe-investment + high crude oil price= rupee weakened against dollar= even more inflation= profit of businessmen declined = less tax collection. 0 In earlier years, Government could make truckload of money through proper auctioning of spectrum and coal mine licenses, but both were ridden with scams and corruption. So when Government tried to auction 2G again in the late 2012 (after supreme courts order), private players werent much interested. 0 Controversies surrounding Vodafone case and GAAR implementation = foreign players felt less confident investing in India. 0 Issues like POSCO and others discouraged foreign investors

Cont
0 Lately Government has woken up and started

firefighting: the increasing of petrol-diesel prices, decreasing number of subsidized LPG cylinders, increasing FDI limits in multibrand retail, insurance, aviation, increasing the railway ticket prices, direct cash transferthese are all measures to decrease the fiscal deficit (=achieving fiscal consolidation). anyways back to the story:

Measures
0 To increase the tax collection, Government is making

extensive use of information technology is continuing, viz. along with e-filing of income tax returns, various forms, audit reports, and statements of tax deduction at source have been made compatible with electronic filing and computerized centralized processing. This helps checking tax evasion.