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| Prune 6% excise list | Narrow down services negative list | Bring GST Amendment Bill in winter session

| Phased implementation of Food Security Bill | Regular increase in diesel prices and urea decontrol | Hike food ration prices with minimum supportprice increase

| Set up group for monetising of government land | PSUs, port trusts and railways identified as fit case | ~30,000 crore can be raised this financial year

| Optfor exchange-traded funds (ETF), offer for sale models | Create asset management company for ETFs | Sell minority stakes in SUUTI, HZL and BALCO


| Revisit Direct Taxes Code Bill | Improve tax data | Ensure timely refunds

Member, Prime Minister’s Economic Advisory Council

Kelkar panel dilutes Finance Commission’s fiscal road map
Projects the country’s fiscal deficit for this financial year at 5.2-6.1% of the GDP
New Delhi, 28 September

The government will be able to close the financial year with a fiscal deficit of 5.2 per cent of the GDP, says the Kelkar committee report. Here is the government’s fiscal story in the last 21 years since reforms began

A pragmatic approach
The committee has suggested a pragmatic approach and the government should accept it. The question is whether they can do it in an election year or not. I think the government has to do these kind of reforms and they should start working on it. They should have a road map to achieve the objectives outlined in the report. As far as urea and diesel prices are concerned, there should be complete decontrol rather than price increase in steps. The subsidies on these account not only result in an increase in fiscal deficit but also in distortion. Petroleum price decontrol is a solution the government should look at. The finance minister has already indicated a review of the Direct Taxes Code Bill. It’s a good idea to have a thorough review of the current Bill. (As told to Santosh Tiwari)



Refined OFS and ETF models needed
New Delhi, 28 September

The Kelkar panel on fiscal consolidation has suggested a predominantly secondary marketbased approach to meet the disinvestment target of ~30,000-crore in the remaining period of the financial year. The committee, headed by former finance secretary Vijay Kelkar, has sought the introduction of a refined offer for sale (OFS) route and exchange traded fund (ETF) model through the creation of an asset management company (AMC). OFS has been available to the government since February 2012 with the ONGC stake sale. The Kelkar pointed out that the existing OFS model has a one-day window, which may not be suited for big ticket stake sales. Concentrating huge volume sales on a single day may have the risk of being affected by sudden fluctuation in prices. The panel has pitched for an extended new OFS method — Call Option Model. Under this option, the government may offer for sale, simultaneously, multiple securities over a period of time until the divestment targets are achieved. The committee has also recommended the ETF route for disinvestment on which the government has already started working by initiating the process for roping in advisors. The ETF route will encourage the retail investors to participate and would allow government to sell all the stocks it holds, instead of a select few. Creation of an ETF comprising of all the 50 listed securities of central public sector

Divest minority stake
In addition to the OFS and ETF models, the Kelkar panel has also suggested the disinvestment of minority government equity stakes in private entities. These include government holdings in SUUTI, HZL and BALCO. “There is practically no economic or strategic rationale for holding on to these minority share holdings in such companies, which are essentially privately owned,” the panel said. Further, the committee also wants the government to expedite sound investment in key areas by cash-rich CPSEs. “If the CPSEs are, however, unable to find good investment outlets during this fiscal year, then the government, should, as majority owner, call for a special dividend,” it said.

he Vijay Kelkar committee has framed a road map for the Centre’s fiscal deficit, one that is easier than that projected by the 13th Finance Commission, also headed by Kelkar. The panel projected the country’s fiscal deficit for this financial year at 5.2-6.1 per cent of the gross domestic product (GDP). For 2013-14 and 2014-15, the panel projected the deficit at 4.6 per cent and 3.9 per cent of GDP, respectively. The 13th Finance Commission had estimated fiscal deficit at three per cent of GDP for 2013-14 and 2014-15. The panel said if its recommendations weren’t implemented, the fiscal deficit this financial year would stand at 6.1 per cent of GDP, against the Budget estimate of 5.1 per cent. However, if the reforms suggested by it were effected, the deficit would be reduced to 5.2 per cent, it added. In the first five months of this financial year, the fiscal deficit already accounted for about 66 per cent of the Budget estimate. In 2011-12, the fiscal deficit was 5.76 per cent of GDP, against the Budget estimate of 4.6 per cent and the revised estimate of 5.9 per cent. The fiscal deficit projections of the Kelkar panel for the next two financial years are close to what the finance ministry had projected in its papers submitted under the Fiscal Responsibility and Budget Management

(FRBM) Act. The ministry had pegged the fiscal deficit for 2013-14 and 2014-15 at 4.5 per cent and 3.9 per cent of GDP, respectively.

This means the Kelkar panel and the ministry both agree the fiscal deficit wouldn’t fall to three per cent of GDP till at least 2014-15. The FRBM Act, enacted in 2003, had prescribed the fiscal deficit be reduced to three per cent of GDP by 2007-08, later relaxing this by a year. However, even in 2008-09, fiscal deficit stood at six per cent of GDP. According to the Kelkar panel, the revenue deficit, or the gap between the government’s current expenditure and its current receipts, would rise to 4.4 per cent of GDP this financial year, compared with 3.4 per cent estimated in the Budget. However, the panel added if reforms were carried out, revenue deficit could be restricted to 3.7 per cent. For 2013-14, it pegged the revenue deficit at 2.8 per cent, and for 2014-15, it projected the figure to fall to two per cent of GDP. These figures are much higher than those projected by the 13th Finance According to the Commission, which panel headed by pegged revenue deficit in 2012-13 at 1.2 Vijay Kelkar per cent. The com(pictured), the mission had projectrevenue deficit would rise to 4.4% ed revenue deficit would be done away of GDP for FY13 with in 2013-14, adding the Centre would be revenue-balance surplus by 0.5 per cent. The Kelkar panel’s recommendations are, however, in conformity with the ministry’s projections for 2013-14 and 2014-15.

Deficit indicators

(% of GDP)

Fiscal deficit

Revenue deficit

Primary deficit

Debt data

(% of GDP)

Centre debt

State debt

Tax-GDP ratio

(% of GDP)

Combined tax-GDP ratio


Annual Information Returns (AIRs) was a dated system which has not evolved. “Taxpayers have found new methods and avenues for parking their undisclosed income to escape detention,” it said. Banks, stock exchanges, etc, have to give information on highvalue transactions to the tax department. Called AIRs, this information is then collated by the tax departments with the returns of an assessee, to detect any evasion. The panel said the department was better equipped to detect non-compliance with the provisions on tax deducted at source (TDS), advance tax and self-assessment tax, as the reporting system was largely computerised. However, the panel found several gaps in the administrative procedure for collection and reporting of TDS. It recommended establishing a data-warehousing and data-mining infrastructure within the tax administration, modernising the scrutiny system to real-time assessment, mandatory quoting of permanent account number or unique identity number on all financial transactions, including opening of bank deposits and reconciliation of TDS and tax returns.

DTC Bill ill-timed
New Delhi, 28 September

enterprises (CPSE) held by the government will offer several advantages to the retail investors such as low cost access to the market and passive investment. “GOI, through an AMC can create an ETF based on the basket of securities held by them. Instead of using all the securities to create a basket, the government may like to consider the option of creating a basket with securities having a good financial track record,” the panel suggested.

Given the government’s fiscal constraints, the Vijay Kelkar panel has recommended a review of the Direct Taxes Code (DTC) Bill, as its implementation would result in considerable stress on the Centre’s finances. It also wants the tax administration to have a much improved data system to detect tax evasion. The panel had been appointed to recommend on a schedule for fiscal consolidation and had given a report earlier this month. Kelkar had chaired the 13th Finance Commission, which gave its recommendations on sharing of revenue between Centre and states for 2010-15. “The Direct Taxes Code Bill, 2010, which intends to revamp the law relating to direct taxes, is likely to result in considerable unacceptable losses on a continuing basis,” the panel said. Given the low tax-GDP ratio and the financial situation, it said there was no fiscal space for such large revenue loss. “Therefore, the Bill should be comprehensively reviewed before it is enacted into law for implementation.” On tax filings, the panel said

Pass Constitution amendment Bill for GST in winter session
New Delhi, 28 September


(% of GDP)

Recognising it was unlikely the Goods and Services Tax (GST) would be rolled out from April 1 2013, the Vijay Kelkar panel suggested at the very least, the government pass the Constitution amendment Bill in the winter session of Parliament. “The roll-out of GST from April 1, 2013, does not appear to be feasible,” the Kelkar committee stated. The panel said the government should reform services and excise duties for their smooth integration into the GST regime and suggested a cut in the standard excise duty rate from 12 per cent to eight per cent to align it with the GST rate and send a signal the government was committed to the new indirect tax regime. It also sought the list of goods for which the excise duty was six per cent or less to be restricted to merit goods, and recommended narrowing the negative list of services. “The passage of the pending

Constitution amendment relating to introduction of GST in the winter session of Parliament would send a very strong signal to trade and industry about the government’s serious intent to move forward on this issue,” it said. Analysts said at a time when the government and the Opposition were on a collision course on the alleged coal block allocation scam, foreign direct investment in the retail sector and fuel price revisions, it remained to be seen how the Bill would muster the support of two-thirds of both Houses of Parliament. Besides, the Bill also has to be ratified by at least half of the states. The parliamentary standing committee on finance is yet to give its recommendations on the report. After it does so, a revised Bill has to be framed to be tabled in Parliament. After the Constitution amendment Bill, the Centre and states would have to get their GST Bills passed in Parliament, as well as their respective Assemblies.




















Source: RBI; Ministry of Finance


1953 John Mathai Committee:
Set the groundwork on India’s fiscal structure leading to 29 amendments

1956 Nicholas KaldorCommittee:
Fiscal structure

THE map is a bitAHEAD with the 13th Planning Commission’s report, but it is in line with WAY easy when compared The road
the finance ministry projections for the terminal year. For this year, the panel distinguishes between two scenarios: With reforms and without reforms (% of GDP)


1959 MahavirTyagi Committee:
Recommendations resulted in the Income Tax Act of 1961

Raise petro product prices
New Delhi, 28 September

2011-12 Revised Total receipts Gross tax revenue Non-debt capital receipts Total expenditure Non-plan expenditure Subsidies Plan expenditure Fiscal deficit Revenue deficit Debt
BE: Budget Estimates

2012-13 BE Without reform With reform 9.6 10.6 0.4 14.7 9.5 1.9 5.1 5.1 3.4 45.5 9.1 10.1 0.2 15.2 10.2 2.6 5.0 6.1 4.4 46.7 9.4 10.3 0.4 14.6 9.8 2.2 4.8 5.2 3.7 46.1

FY14 FY15 Projections 9.3 10.6 0.3 13.9 9.1 1.7 4.9 4.6 2.8 44.9 9.5 11.1 0.3 13.4 8.5 1.5 4.9 3.9 2.0 42.9

9.0 10.2 0.3 14.9 10.1 2.4 4.8 5.9 4.5 52.0

Source: Report of the committee on road map for fiscal consolidation

The Kelkar committee has asked the government to gradually raise the prices of petroleum products and urea. It also wanted increases in the price of food items sold through ration shops and stopping sale of sugar through the Public Distribution System. Arvind Mayaram, the government’s economic affairs secretary, said,"The government is of the view that in a developing country where a significant proportion of the population is poor, a certain level of subsidies is necessary and unavoidable, and measures must be taken to pro-

tect the poor and vulnerable sections of the society." He said the government had not yet taken a view on the report or any of its recommendations. Revising urea prices regularly in subsequent years to close the wide gap with phosphatic and potassic (P and K) fertilisers, fully deregulating diesel prices by the start of 2014-15 and regular revisions in the prices of kerosene and cooking gas are among the important recommendations of the expert committee to keep subsidy levels affordable. The panel said half of the diesel subsidies should be eliminated in the current financial year and the

other half in the next one. The recommendations also include immediately increasing the price of diesel by ~4 a litre (this came before the recent ~5 a litre rise), kerosene by ~2 a litre and of LPG by ~50 a cylinder. Plus, “smaller and more frequent price revisions” in the future. On food subsidy, the recommendation is to increase the prices of items sold through ration shops every time the Minimum Support Price for crops is revised. On the Food Security Bill, expected to add at least ~20,000 crore a year to government expenses, the panel wants the programme “appropriately phased”, taking into account the fiscal challenges.

1971 KN Wanchoo Committee:
Recommended family should be unit of assessment; 1% levy on share capital; reveal donations to political parties, voluntary declarations be abolished

1978 C C Choksey Committee:
Suggested a central tax code

1981 LKJha Committee:
Specialisation by tax departments; selective prosecution; PANs be allotted

1985 NIPF&P Report:
Dismantle licence system

1986 Long-Term Fiscal Policy:
Led to introduction of Modvat scheme by then Finance Minister V P Singh

New Delhi, 28 September

resources for development, and that is monetising the government’s unutilised and under-utilised land resources,” the committee stated. These resources, it added, could finance infrastructure needs, particularly in urban areas. “The potential is considerable, given the underutilised prime lands of PSUs, port trusts, the railways, etc,” the report stated. This policy has been effectively utilised in many countries, including the US, France, Canada, Australia and China. BS REPORTER
New Delhi, 28 September

Form body on monetising govt land Cut cost, but don’t hit job generation
The Kelkar panel has suggested the government think beyond selling stakes in public sector undertakings (PSUs), and opt for land monetisation to increase revenue. Through disinvestment, the government should raise ~30,000 crore this financial year, as well as in the next, it stated. In the Budget, the government had set a disinvestment target of ~30,000 crore for this financial year. The panel recommended the government set up a group to suggest an institutional framework and policy measures in this regard. This, the report stated, would be in line with land monetisation policies followed in many developed countries. According to estimates, about 60 sick PSUs in the country together account for 20,000 hectares of vacant land. “Over the next 24-36 months, there is yet another policy instrument for raising Stressing the need to reduce the country’s fiscal deficit, the Kelkar committee report has called for reducing Plan expenditure to help save ~20,000 crore. This, the panel stated, could be achieved through proper prioritisation and efficient use of resources. According to the report, the current pace of Plan expenditure would ensure unintended savings. “However, with a view to keep the deficit at an acceptable level, there is a need to take proactive measures to keep the Plan expenditure under further check. This can be easily done by reallocations across schemes,” it added. The 2012-13 Budget had provided for Plan expenditure of ~5,21,025 crore, a rise of about 22 per cent compared with the ~4,26,604 crore revised estimate last financial year. The report stated cuts in funds to schemes should be carried out without affecting benefits to malnourished children and lactating and pregnant mothers. Also, these cuts shouldn’t hit employment generation, it added. Suggesting a better design to contain widespread leakages in Plan schemes, the panel said while curbing expenditure, outcomes could easily be improved. However, to make this possible, the Planning Commission had to improve its monitoring systems and keep a check on the deployment of funds, it added. It also stressed the importance of protecting allocation to schemes that resulted in creation of capital assets, by way of direct expenditure or grants to other implementing agencies.

1991 R Chelliah Committee:
Technical offences be compounded; fund computerisation by FIS; corporate tax of 40%

2001 Parthasarathy Shome Committee:
Tax reforms for the X Plan

2002 Vijay KelkarCommittee:
Reforms of direct and indirect taxes

2003 Fiscal Responsibility and Budget Management Act:
Required government to eliminate revenue deficit and cut fiscal deficit to 3 per cent of GDP by 2008-09