Expenditure control steps in offing

Finance minister Yashwant Sinha is proposing to take critical steps to contain expenditure by downsizing the government and restructuring its domestic debt profile during the course of the next financial year.

Reacting to criticism that his budget has failed to spell out expenditure control measures, Sinha said he did not wish to play to the gallery by announcing these measures prematurely. "I have a definite game plan and will announce it soon", Sinha told The Financial Express.

Expenditure control steps in the offing

Sinha said the government will come out with a voluntary retirement scheme(VRS) for government staff in the surplus pool". Also, the efforts to introduce zero-based budgeting would continue with renewed vigor and many schemes, which have outlived their utility, would either be scrapped or merged with other schemes.

The other focus area would be the management of domestic debt liability. The minister proposed to restructure domestic debt liability by replacing costly loans with cheaper debts and thereby contain the menace of increasing interest payments and growing fiscal deficit. Sinha stressed that "we will look at domestic debt as a professional fund manager". He said the interest rates on Public Provident Fund (PPF) and General Provident Fund (GPF) have been cut by 100 basis points and the same would help in reducing the interest burden to some extent. As far as interest in EPF was concerned, he said it was for the trustees of the fund to take view. While the interest on PPF and GPF has been reduced to 11 percent, the EPF is still paying a rate of 12 percent. Defending his decision to tax exporters, Sinha said that the "tax burden is equally distributed, so everybody seems to be up in arms."

Explaining the rationale for his budget proposals which evoked sharp reactions from almost every quarter, Sinha said, the exporters have a mindset that they should not be taxed. He added, that the circumstances have significantly changed with the dismantling of protective tariff walls and more significantly freeing of the exchange rate regime.

The finance minister also said that he had to forego Rs700 crore in customs revenue to honor the WTO commitments and a significant amount due to the lowering of the duty on crude oil and petroleum products. The reduction in duty rates of crude and products was meant to facilitate the dismantling of the administrative price mechanism (APM). While the finance minister's tax proposals will result in additional resource mobilization of Rs 8,334 crore from excise and customs, the exchequer will lose Rs 1,428 crore on account of concessions on the customs side.

The minister refused to admit that he was harsh on the industry. He said the minimum alternate tax (MAT) was cut to 7.5 percent from 10 percent. Tax on dividends would be paid from the surplus that companies distribute among stakeholders. 

The introduction of the Central Value Added Tax was a path-breaking step that would eliminate many evils of the present excise structure. Sinha said that imposition of the special excise duty (SED) was in line with international practice. Many countries impose SED for revenue reasons and sometimes other considerations. He added that the bulk of the excise amounting to almost 86 percent of the total collection would be fromCenvat which has been pegged at 16 percent.

Agreeing he had pegged the fiscal deficit for the next fiscal at a higher level of 5.1 percent of the GDP, Sinha said "it is mainly on account of the increase in defense expenditure and devolution to the states. However, he added, "despite all the fiscal constraints, I have not cut the development expenditure.