Budget 2014: Finance Minister Arun Jaitley for controlling fiscal deficit through expansion of economy

NEW DELHI: Two days before presenting his maiden budget, Finance Minister Arun Jaitley said the fiscal deficit needs to be maintained at an acceptable level by expanding the economy and tax buoyancy rather than by cutting expenditure. Responding to supplementaries during Question Hour in the Rajya Sabha, he said fiscal prudence is required because if the deficit rises it would mean borrowing more.

“So, if we are borrowing more in order to finance the current expenditure, we are spending beyond our means. If we are spending beyond our means, we are going to leave behind a legacy of debt,” Jaitley said. The fiscal deficit has to be “maintained at an acceptable level”, he said. “And, the current acceptable level, which is by the FRBM Act, is that you have to move towards 3%.”

Govt Rationalising Expenditure

“I would personally have been happier if the containment of fiscal deficit takes place by expansion of the economy, by greater tax buoyancy, by greater tax collection, rather than by contracting expenditure,” Jaitley added.Pointing out that the fiscal deficit can be controlled by either collecting more revenue or spending less, he said: “When you spend less, you also tend to contract the expenditure and the economy.

Therefore, we will have to have a judicious mix of expenditure as well as revenue collections.” But in exceptional times such as the 2008-09 global slowdown, which call for an economic stimulus, the fiscal deficit has to be put behind, he said, adding that “these are circumstances where the fiscal deficit itself will rise”.

The fiscal deficit in 2013-14 was 4.5% of GDP, down from 4.9% in the previous year and 5.8% in 2011-12, Jaitley said, adding that it has been declining over the past three years.

To bring the deficit below the desirable level and to improve the macroeconomic environment, the government has taken steps to rationalise expenditure and optimise resources.“

The level of fiscal deficit during the current year (2014-15) up to May is Rs 2,40,837 crore, which is 45.6% of Budget Estimate of 2014-15,” Jaitley said.The government, he said, has adopted a road map for fiscal consolidation following an amendment to FRBM Act, which provides for lowering of the fiscal deficit to 3% of GDP.

“Despite several challenges, the government has been steadfast in policy of fiscal rectitude. In the mediumterm framework, the reduction in fiscal deficit has been designed with a judicious mix of reduction in total expenditure as percentage of GDP and improvement in gross tax revenue as percentage of GDP,” Jaitley said.

When P Rajeev (CPM) asked about Rs 5.01 lakh crore in uncollected taxes and another Rs 5.29 lakh crore in revenue foregone by way of exemptions, Jaitley said tax collection drive will be intensified and there will be no laxity shown to those who owe taxes.“

As far as your other point is concerned, about people from whom taxes are due and not collected, wewill intensify that action and I am one with you that those are people to whom no laxity has to be shown,” he said.