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Recently, the Kelkar Committee published a roadmap for fiscal consolidation. The report stresses the need and urgency to address India’s fiscal deficit. A high fiscal deficit – the excess of government expenditure over receipts – can be problematic for many reasons. The fiscal deficit is financed by government borrowing; increased borrowing can crowd out funds available for private investment. High government spending can also lead to a rise in price levels. A full PRS summary of the report can be found here. Recent fiscal trends Last year (2011-12), the central government posted a fiscal deficit of 5.8% (of GDP), significantly higher than the targeted 4.6%. This is in stark contrast to five years ago in 2007-08, when after embarking on a path of fiscal consolidation the government’s fiscal deficit had shrunk to a 30 year low of 2.5%. In 2008-09, a combination of the Sixth Pay Commission, farmers’ debt waiver and a crisis-driven stimulus led to the deficit rising to 6% and it has not returned to those levels since. As of August this year, government accounts reveal a fiscal deficit of Rs 3,37,538 crore which is 65.7% of the targeted deficit with seven months to go in the fiscal year. With growth slowing this year, the committee expects tax receipts to fall short of expectations significantly and expenditure to overshoot budget estimates, leaving the economy on the edge of a “fiscal precipice”.
Figure 1 (source: RBI)
Committee recommendations - expenditure To tackle the deficit on the expenditure side, the committee wants to ease the subsidy burden. Subsidy expenditure, as a percentage of GDP, has crept up in the last two years (see Figure 2) and the committee expects it to reach 2.6% of GDP in 2012-13. In response, the committee calls for an immediate increase in the price of diesel, kerosene and LPG. The committee also recommends phasing out the subsidy on diesel and LPG by 2014-15. Initial reports suggest that the government may not support this phasing out of subsidies.
Figure 2 (source: RBI, Union Budget documents, PRS)
For the fertiliser subsidy, the committee recommends implementing the Department of Fertilisers proposal of a 10% price increase on urea. Last week , the government raised the price of urea by Rs 50 per tonne (a 0.9% increase). Finally, the committee explains the rising food subsidy expenditure as a mismatch between the issue price and the minimum support price and wants this to be addressed. Committee recommendations - receipts Rising subsidies have not been matched by a significant increase in receipts through taxation: gross tax revenue as a percentage of GDP has remained around 10% of GDP (see Figure 3). The committee seeks to improve collections in both direct and indirect taxes via better tax administration. Over the last decade, income from direct taxes – the tax on income – has emerged as the biggest contributor to the Indian exchequer. The committee feels that the pending Direct Tax Code Bill would result in significant losses and should be reviewed. To boost income from indirect taxes – the tax on goods and services – the committee wants the proposed Goods and Service Tax regime to be implemented as soon as possible.
Figure 3 (source: RBI)
Increasing disinvestment, the process of selling government stake in public enterprises, is another proposal to boost receipts. India has failed to meet the disinvestment estimate set out in the Budget in the last two years (Figure 4). The committee believes introducing new channels [1. The committee suggests introducing a ‘call option model’. This is a mechanism allowing the government to offer for sale multiple securities over a period of time till disinvestment targets are achieved. Investors would have the option to purchase securities at the cost of a premium. They also propose introducing ‘exchange traded funds’ which would comprise all listed securities of Central Public Sector Enterprises and would provide investors with the benefits of diversification, low cost access and flexibility.] for disinvestment would ensure that disinvestment receipts would meet this year’s target of Rs 30,000 crore.
Figure 4 (source: Union Budget documents, PRS)
Taken together, these policy changes, the committee believe would significantly improve India’s fiscal health and boost growth. Their final projections for 2012-13, in both a reform and no reform scenario, and the medium term (2013-14 and 2014-15) are presented in the table below: [table id=2 /]
The Monsoon Session of Parliament begins tomorrow and will continue till August 10, 2018. It is scheduled to have 18 sittings during this period. This post outlines what is in store in the upcoming session.
The session has a packed legislative agenda. Presently, there are 68 Bills pending in Parliament. Of these, 25 have been listed for consideration and passage. In addition, 18 new Bills have been listed for introduction, consideration, and passage. This implies that Parliament has the task of discussing and deliberating 43 Bills listed for passage in an 18-day sitting period. Key among them include the Bills that are going to replace the six Ordinances currently in force. The government is going to prioritize the passage of these six Bills to ensure that the Ordinances do not lapse.
Besides the heavy legislative agenda, the session will also witness the election of a new Deputy Chairman for the Upper House. Former Deputy Chairman, P.J. Kurien’s term ended on July 1, 2018. The upcoming election has generated keen interest, and will be closely watched. The role of the Deputy Chairman is significant, as he quite frequently oversees the proceedings of the House. The Deputy Chairman is responsible for maintaining order in the house and ensuring its smooth functioning. The preceding Budget Session was the least productive since 2000 due to disruptions. Rajya Sabha spent only 2 hours and 31 minutes discussing legislative business, of which 3 minutes were spent on government Bills. In this context, the role of the Deputy Chairman is important in ensuring productivity of the house.
Another key player in ensuring productivity of Parliament is the Speaker of the Lower House. In Budget Session 2018, the Speaker was unable to admit a no confidence motion. This failure was based on her inability to bring the house in order. Repeated disruptions led to the passage of only two Bills in Lok Sabha. The same session also saw disruptions by certain MPs demanding special category status for Andhra Pradesh. Between the last session and the upcoming session, a key development includes the resignation of five YRSC members, reducing the strength of MPs from Andhra Pradesh to 20. In light of this, one has to wait to see whether the demand for special category status for Andhra Pradesh will be raised again.
Coming to the legislative agenda, of the six Bills that aim to replace Ordinances, key include: (i) the Fugitive Economic Offenders Bill, 2018, (ii) the Criminal Law (Amendment) Bill, 2018, (iii) the Insolvency and Bankruptcy Code (Amendment) Bill, 2018, and (iv) the Commercial Courts (Amendment) Bill, 2018. The Fugitive Economic Offenders Bill aims to confiscate the properties of people who have absconded the country in order to avoid facing prosecution for economic offences. The Fugitive Economic Offenders Bill, 2018 was introduced in Lok Sabha in March 2018. Subsequently, an Ordinance was promulgated on April 21, 2018. The Criminal Law (Amendment) Bill increases the punishment for rape of women, and introduces death penalty for rape of minor girls below the age of 12. The Insolvency and Bankruptcy (Amendment) Bill aims to address existing challenges in the Insolvency and Bankruptcy Code. It amends the Code to include homebuyers as financial creditors in the insolvency resolution process.
There are some Bills that have been passed by one house but are pending in the other, and some that are pending in both the houses. These cut across various sectors, including social reform, education, health, consumer affairs, and transport. Some key reformative legislation currently pending include the Transgender Persons (Protection of Rights) Bill, 2016, and the Triple Talaq Bill. The Triple Talaq Bill, passed on the day of introduction in Lok Sabha, is pending in Rajya Sabha. When introduced in Rajya Sabha, the opposition introduced a motion to refer the Bill to a Select Committee. In the forthcoming session, it remains to be seen whether the Bill will be sent to a Select Committee for detailed scrutiny or will be passed without reference to a Committee. Other pending legislation include the the National Medical Commission Bill, 2017, the RTE (Second Amendment) Bill, 2017, the Consumer Protection Bill, 2018 and the Specific Relief (Amendment) Bill, 2017.
Of the 18 new Bills listed for introduction, all have been listed for consideration and passage as well. These include the Trafficking of Persons Bill, 2018, the DNA Technology (Use and Application) Regulation Bill, and amendments to the RTI Act. Since they have been listed for passage, it remains to be seen whether these Bills are scheduled to be scrutinized by a Parliamentary Committee. In the 16th Lok Sabha, only 28% of the Bills introduced in Lok Sabha have been referred to Committees. This number is low in comparison to 60% and 71% of the introduced Bills being referred to Committees in the 14th and 15th Lok Sabha, respectively. Committees ensure that Bills are closely examined. This facilitates informed deliberation on the Bill, and strengthens the legislative process.
Besides taking up the legislative agenda, an important function of Parliament is to discuss issues of national importance and hold the government accountable. In the previous session, the issue of irregularities in the banking sector was repeatedly listed for discussion. However, due to disruptions, it was not taken up. Budget Session 2018 saw the lowest number of non- legislative debates since the beginning of the 16th Lok Sabha. In the upcoming session, it is likely that members will raise various issues for discussion. It remains to be seen whether Parliament will function smoothly in order to power through its agenda, and fulfil its obligation to hold the government accountable.
