KOLKATA — The Narendra Modi government failed the fiscal consolidation test and the people of India will pay the price, former Union Finance Minister P. Chidambaram said Feb. 26.
"Starting from 4.5 percent, the present government should have brought down fiscal deficit to 3 percent in 2016-17. They twice postponed it and they said they would do in 2017-18. Last year they said they would do in 2018-19.
"In 2017-18, the fiscal deficit is supposed to be 3.2 percent, but in the budget he (Finance Minister Arun Jaitley) has done 3.5 percent. Next year, it should have been 3 percent but he said he would do 3.3 percent. On the test of fiscal consolidation, the government has failed," he said.
"From 4.5 percent to 3.3 percent of fiscal deficit, it is a reduction of 1.2 percent in five years," Chidambaram said, adding that when the UPA government left office it had reduced the fiscal deficit from 5.9 percent to 4.5 percent – a reduction of 1.4 percent in two years.
The United Progressive Alliance government had also reduced the revenue deficit to 3.2 percent and current account deficit to 1.7 percent, he said at an interactive session organized by the Bharat Chamber of Commerce.
"We achieved reasonable fiscal consolidation," he said, noting that fiscal stability is the foundation upon which all economic policy is constructed and adding that without fiscal stability, nothing can be achieved, no matter the country.
Of the 3.5 percent of fiscal deficit for the current year, revenue deficit made up 2.6 percent, he said, adding that the government is borrowing for revenue expenditure, not for capital investment.
Explaining the budgetary numbers, he said the nominal GDP growth was 10.5 percent and gross tax revenue increased by 13.42 percent in 2017-18.
For 2018-19, the nominal growth is projected to be 11.5 percent but gross tax revenue is supposed to jump from 13.4 percent to 16.7 percent.
"How does an additional 1 percent in nominal GDP growth give you revenue buoyancy of about 3.3 percent? This is a question the economists are asking. But there is no answer," he said.
An analysis of tax revenue numbers showed that corporation tax is supposed to grow by 10.1 percent, income tax by 20 percent and the Goods and Services Tax is supposed to rise by a whopping 67 percent, Chidambaram said.
"The current year, you took a hit on GST... The GST network is still wobbly, the e-way bill has been postponed, people are still complaining about filing too many returns... The GST is still a problem child.
"How do you project the GST revenues will go up by 67 percent especially when you are bringing down the rates on the high value items? Therefore, the revenue numbers are suspect," he said.
Farmers and youth of the country are "in distress" as the government has failed to provide relief to the stressed agriculture sector and to create jobs for youth, said the Congress leader.