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Finance Commission to focus on fiscal deficit

Fakir Chand in Bangalore

The 12th Finance Commission, to be headed by Andhra Pradesh Governor R Rangarajan, will focus on reducing the consolidated fiscal deficit of the Centre and the states.

Disclosing this in Bangalore on Thursday, Finance Commission member T R Prasad, who was till recently Cabinet secretary to the Union government, told rediff.com that stress would be laid on how to build sustainability in the revenues of the states so that they could bring down their widening fiscal deficit, which has been a source of concern to all.

"How to control the fiscal deficit at the Centre and the states will be a big challenge to the Commission. Though my focus will be mainly on governance, the objective will be to bring about the kind of changes in the structures that will reduce the fiscal deficit both at the Centre and state levels without compromising on efficiency, Prasad stated.

Prime Minister Atal Bihari Vajpayee and Finance Minister Jaswant Singh had recently expressed concern over the consolidated fiscal deficit of the country crossing the 10 percent of the GDP ratio at a meeting of all state chief ministers last month.

Under the terms of reference, the commission is expected to make its recommendations by July 2004, to bring about a sea change in managing government finances in the post-reform era.

"One of the issues the finance panel will be look into is the need to reduce the government workforce that was recommended by the Fifth Pay Commission but not yet implemented by the governments in right earnest.

Though the Centre and many state governments had gone about implementing the revised pay scales to their employees, the recommendation to cut their bureaucracy by 35 percent in phases has not been taken up," Prasad lamented.

'High tax renders Indian goods non-competitive'

The other core issue the commission will be focusing is on the high indirect taxation measures of the government that is making India lag behind other developing countries like China to be globally competitive.

"In my analysis recently, I have brought to the notice of the government how the Indian indirect taxes were 16-17 percent higher vis-à-vis China, making the Indian goods non-competitive in the international markets," Prasad claimed.

The multiple indirect taxes are coming in the way of competition by the Indian industry and businesses. This can be addressed by bringing in a total value added tax, as even the existing Cenvat has not been able to tackle the problem.

Prasad hoped that all the state governments would be able to migrate to VAT from April 1, 2003.

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