Is Fiscal Consolidation possible without plan expenditure cuts?

Is Fiscal Consolidation possible without plan expenditure cuts?

The government plans various strategies to control the fiscal deficit and to stop the accumulation of debt that burdens economy. The steps taken are the means of fiscal consolidation. It is a vital process as it minimizes the inflationary impulse in the economy. Also, it makes sure that the current account deficit does not rise too high. The government remains in a position to achieve debt sustainability. If it is not done, it can lead to prolonged slowdown in the nation. So, how it should be done? Government should only focus on non-planned expenditure cut or should also take planned expenditure into account. Is Fiscal Consolidation possible without plan expenditure cut?

Yes

• The main problem connected with fiscal deficit is not plan expenditure but it is the non-plan revenue expenditure, more specifically subsidies.

• Apart from the non-plan revenue expenditure, the second problem is non-plan capital expenditure in which the government allocates funds to provide loans to public enterprises. It needs special attention as the money is constantly poured in loss making units adding to fiscal woes.

• Until and unless, the government brings the subsidies in control, the problem of fiscal deficit is not going to get solved.

• The focus should be on the disinvestments as it is one of the most important ways to reduce the fiscal deficit.

• It is important to lower the cost of bureaucracy to achieve fiscal consolidation. Again, it is an integral part of non-planned expenditure.

No

• Planned expenditure cannot be ignored as many a times it happens that the government doesn’t spend all the money allocated under planned expenditure to have a positive impact on fiscal numbers.

• Revenue expenditure is the main culprit behind the fiscal deficit and it falls under both plan and non-planned categories.

• Like non-planned expenditure, planned expenditure has also not shown any respite in last year, and therefore big or small it can't be ignored.

• Planned and non-planned expenditure when combined forms total expenditure, and for fiscal consolidation all the aspects have to be analyzed and controlled.

• Planned expenditure is done for the development and completion of various projects which if are not handled efficiently can lead to further fiscal problems.

Conclusion

Fiscal deficit has remained a major problem in India. The new government wants to control the rising fiscal deficit. The falling oil prices will go a long way to help the present government in achieving its target. However, it is important to understand that the planned and non-planned expenditure both need to be controlled for smooth fiscal consolidation process. Undoubtedly, non-planned expenditure accounts for a larger deficit compared to planned expenditure but it doesn’t imply that planned expenditure cut should be ruled out completely.