If wishes were horses, it would appear as if India's finance minister is ready to slay the fiscal dragon and ride out into the sunset. Yashwant Sinha has been talking tough on the need for "belt tightening measures" and "biting the bullet" to control the fiscal deficit. The questions that are begged is why didn't he bite it earlier ? And would he do so in the Union Budget for 2000-2001 ? For all the tough talk, the BJP-led government so far hasn't resorted to serious measures for additional resources mobilisation, including the much-vaunted Kargil tax, Expenditures on defence and other heads have mounted, while tax revenues are expected to fall short of targets in 1999-2000. Yet Mr. Sinha doesn't think the fisc is slipping out of control as the government is keeping a close watch on expenditures and pushing up tax collections. The only major problem area to him is the revenue deficit, which means that the government doesn't have the resources to meet its routine housekeeping expenditures, forcing it to borrow high-cost-funds. The fiscal deficit reflects this borrowing requirement. Because the revenue deficit has ballooned the fiscal deficit too will be higher at say 5.5 per cent or 6 per cent of GDP rather than the target of 4 per cent of GDP. This is indeed a serious fiscal slippage which can upset the finance minister's medium term plan-set out in the Union Budget for 1999-2000-to lower it to less than two percent of GDP in four years.

Can Mr. Sinha tackle the revenue deficit ? The task is indeed daunting as he hasn't had much success so far in controlling expenditures on defence, subsidies, wages and salaries of government staff and above all, interest-payments. Biting the bullet on the expenditure front is thus a pipe dream. The only option left is to raise tax revenues. The finance minister's biggest challenge indeed is to reverse the declining trend in the tax GDP ratio. To be fair to Mr. Sinha, he is aware of the problem : That if India's tax-GDP ratio was at the level prevailing in the years till 1989-90, the fiscal deficit could be halved straightaway. Then the Centre's tax-GDP ratio was 11.5 per cent. Now it has fallen to 9 per cent. So if it's back to 11.5 per cent. Mr. Sinha would have Rs.50,000 crore of additional revenues to meet a given level of expenditures. The borrowing requirement, or fiscal deficit, of Rs.1,20,000 crore would be less by that amount or 3.5 per cent of GDP instead of 6 per cent of GDP. But is that likely ? Not if Mr. Sinha does-'t go flat out to plug the loopholes in the existing tax machinery and tone up the administration. Not if he doesn't enforce stricter compliance. Not if he doesn't seek fresh sources of tax revenue such as agriculture and services. Raising the tax-GDP ratio-rather than engaging in hard talk-will enable him to rein in the fisc and ride out into the sunset.

EDITORIAL OF THE TIMES OF INDIA

DATE : 08/02/2000.
PLACE : AHMEDABAD.