India Fiscal Sector Reforms

By: EconomyWatch Content   Date: 5 April 2010

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 India's fiscal sector reforms help to raise the rate of savings and investments in India, which further enhances the productivity of public expenditure. 

Components of India's Fiscal Sector Reforms

Some of the major components of India's fiscal sector reforms include expenditure reforms, tax reform measures, public sector restructuring and systematic reforms in the government's borrowing process.

 

Union Budget 2010-11: Fiscal Reforms in India

The Union Budget for 2010-11 was widely anticipated to signal a return to fiscal consolidation, while also making some announcements on the much awaited structural reforms in areas like implementation of Goods and Services Tax (GST), Direct Tax Code (DTC), and other subsidies. The Budget subsequently announced a roadmap for fiscal consolidation, including reduction of government debt, timelines for implementation of DTC and GST, and partial rollback of Excise Duty.

 

The focus of expenditure remains on promoting growth and infrastructure development, with 46% of the allocations being devoted to infrastructure while revenue expenditure growth has been budgeted at 6% for 2009-10. The higher target of Rs.400 billion set for disinvestment proceeds creates fiscal space for the budgeted 30% growth in capital expenditure, including expenditure on roads, recapitalization of public sector banks to the extent of Rs.150 billion, and a considerable increase in the defense sectors.

 

The Union Budget for 2010-11 has retained the previous year’s target of 5.5% for the fiscal deficit in 2010-11. The forecasted improvement in the fiscal deficit in 2010-11, as compared to the revised estimate of 6.7% of the GDP in 2009-10, relies largely on the expectation that the revenue deficit would improve from 5.3% of GDP in 2009-10 to 4% of GDP in 2010-11.

 

The International Monetary Fund (IMF) expects the Indian economy to come back to its strength by 2010-11 by growing 8%, from 6.75% logged in the current fiscal year. The IMF also believes that India's inflation to be 8.1% for the current fiscal and 5.5 % for 2010-11 based on the wholesale price index. 

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