KELKAR REPORT

RECOMMENDATION OF KELKAR REPORT

The Vijay Kelkar committee, which was given the task of preparing a fiscal consolidation plan, has suggested a number of steps for improving the fiscal situation of the Government. The committee examined various measures which are needed to be undertaken by the Government for fiscal consolidation in the medium term. These include raising the tax-to-GDP ratio, policy measures for pruning expenditure on subsidies and other items of expenditure, rightsizing of plan support, and steps for increasing disinvestment proceeds.

The report said that by implementing the steps suggested by the panel, the Government can keep the fiscal deficit at 5.2% of GDP, marginally higher than the 5.1% targeted in the budget. It also panel warned that if no subsidy changes were carried out, the Government deficit rise to 6.1% of GDP in the current fiscal ending 31 March 2013.

The Government has, however, rejected its recommendation to stagger the implementation of the proposed food security law. Announcing the release of the report for public debate, department of economic affairs secretary Arvind Mayaram said withdrawal of all subsidies was not part of the Government’s stated policy.

Salient Features

• Reduce subsidies to 2% of GDP in 2013-14 and to 1.8% in 2014-15, from a projected 2.6% in 2012-13.
• Immediate increase in the price of diesel by 4 per litre, that of kerosene by 2 per litre and cooking gas by 50 per cylinder. This would reduce the revenue loss to oil-marketing companies by Rs 20,000 crore. (Prices of diesel have already been increased by Rs 5 per litre and number of subsidised LPG cylinders capped to 6 per family per year)
• Instead of subsidised provision for diesel, kerosene, cooking gas, move to a system of market-based prices by Mar 2014
• Implement direct cash transfers to subsidise needy households
• Implementation of Goods and Services Tax (GST)
• Reduce excise & service tax rates to 8%
• Amendment of relevant laws to ensure mandatory quoting of PAN or UID for all economic transactions including bank accounts, fixed deposits, all financial transactions, all salary payments and immoveable property transactions. This would prevent splitting of transactions and to ascertain whether the person was liable to tax or not. Online verification of PAN could be mandatory for all high value transactions, in order to reduce black money transactions.
• A data-warehousing and data mining infrastructure be set up within the income tax department for undertaking data mining and taxpayer profiling.
• The I-T department should immediately set up a separate Directorate of Risk Management for designing a robust risk management system which will improve the efficiency of the tax administration and enhance transparency.
• The department should create a national portal to enable tax payers to file applications seeking rectifications and appeal effect.
• A 360 degree profile of all taxpaying individuals and institutions should be created to help decrease tax evasion and tax fraud.
• The proposed Food Security Bill should be appropriately phased taking into account the present difficult fiscal challenges. The proposed law, is expected to cost anywhere between Rs 60,000 crore and Rs one lakh crore, over and above the food subsidy bill, which is estimated to be Rs 85,000 crore this fiscal.
• The Government should step up the process of stake sale in state run firms, sell minority holdings in Specified Undertaking of the Unit Trust of India (SUUTI), Hindustan Zinc and Balco, as there is practically no economic or strategic rationale for holding on to these minority share holdings in such companies, which are essentially privately owned.
• Government can monetize under-utilized land resources of public sector enterprises, port trusts and railways to finance infrastructure needs in urban areas. A group to work out the policy framework and institutional modalities should be established by the Government.Such policy has been effectively utilized in many countries including US, France, Canada, Australia,China.                                                                                                                                                                                                                                                   
• Central public sector undertaking holding large cash balances should be urged to look for sound investment in key area. If they are unable to find good investment outlets during this fiscal year, then the Government, should, as majority owner, call for a special dividend on a ‘use it or lose it’ principle.