10.8 Measures of Fiscal Policy Reforms

8. Measures of Fiscal Policy Reforms:

The Government of India has introduced several fiscal policy reforms which constitute the main basis of the stabilisation policy of the country.

Following are some of the important measures of fiscal policy reforms adopted by the Government of India in recent years:

(i) Reduction of Rates of Direct Taxes:

The peak rate of income tax was reduced to 30 per cent in 1997-98 budget. This has resulted in an increase in the share of direct taxes in total revenue of the country from 19 per cent in 1990-91 to around 61 per cent in 2008-09.

(ii) Simplification of Tax Procedure:

In recent years as per the recommendation of Raja Chelliah or Taxation Reform Committee, several steps have been taken to simplify the tax procedure in the successive budgets. The 1998-99 budget has introduced a series of tax simplification measures, viz., “Saral”, “Samadhan” and “Samman”, which is considered as an important step in right direction.

(iii) Reforms in Indirect Taxes:

These reforms include introduction of advalorem rates, MODVAT scheme etc.

(iv) Fall in the volume of Government Expenditure:

Several measures were undertaken recently by the government. Accordingly, total expenditure of the Government under various heads has been reduced. As a result, total public expenditure as per cent of GDP has declined from 19.7 per cent of GDP in 1990-91 to 16.9 per cent in 2008-09.

(v) Reduction in the Volume of Subsidies:

Central Government has been making huge payments in the form of subsidies, i.e., food subsidies, fertiliser subsidies, export subsidies etc. Steps have been taken to reduce these subsidies in a phased manner.

(vi) Reduction in Fiscal Deficit:

The Central Government has been trying seriously to contain the fiscal deficit in its annual budget. Accordingly, it has reduced the extent of fiscal deficit from 7.7 per cent of GDP in 1990-91 to 6.1 per cent in 2008-09. But fiscal stabilisation necessitates containing the fiscal deficit at least to 3 per cent of GDP.

(vii) Reduction in Public Debt:

Recently, the Central Government has been trying to reduce the burden of public debt. Accordingly, the external debt as per cent of GDP which was 5.4 per cent in 1990-91 gradually declined to 4.9 per cent in 2008-09. The internal debt as per cent of GDP has declined from 48.6 per cent in 1990-91 to 37.9 per cent in 2008-09.

Similarly, the total outstanding loan or liabilities as per cent of GDP also declined from 63.0 per cent in 2003-04 to 58.9 per cent in 2008-09.

(viii) Disinvestment in Public Sector:

Another important fiscal policy reforms introduced by the Government of India is to disinvest the shares of the public sector enterprises. The government has disinvested as part of its stake in 39 selected PSUs since the disinvestment process began in 1992. Till 2006-07, it has raised around Rs 51,608 crore through disinvestment of share of PSUs.

In the mean time, the Government has constituted a Disinvestment Commission to advise it on how to go about disinvesting the shares of PSUs. The Commission, in its first three reports has given its recommendations on 15 PSUs out of 50 referred to it.

The Commission submitted at least eight reports covering 43 PSUs and also undertook diagnostic studies in 1998-99 in respect of these undertakings for giving recommendations.