Long term strategy for fiscal correction needed: Crisil

NEW DELHI, FEB. 28. The rating agency Credit Rating and Information Services of India (Crisil) said today that there was need for a long-term strategy towards fiscal correction and a determined implementation of a Fiscal Responsibility Act (FRA) to curb increasing fiscal deficit which was hampering economic growth. The FRA should establish principles of responsible fiscal management and achieve revenue surpluses to reduce debt to prudent levels, Crisil said in its latest issue of `Crisil alert' adding such measure would imply that the Government was not allowed to reduce debt through asset sales.

Under the FRA, modelled along the lines of the one implemented in New Zealand, the Government would also be liable to a parliamentary and public scrutiny of economic and fiscal information and plans, Crisil said.

The rating firm said structural component of fiscal deficit, which accounted for 5.75 per cent of the 6.1 per cent fiscal deficit in 1997-98 and was seen as the key determinant of the fiscal deficit for India, needed to be addressed to attain revenue surpluses.

The rating agency suggested widening of tax base and targeting sectors that are not adequately taxed to generate revenue surpluses adding ``the tax structure needs to be made consistent and equitable with respect to the income composition in the economy." A single value added tax (VAT) structure would lead to higher revenue generation through greater compliance, it said.

Crisil said structural problems on the expenditure side arise due to a high preemption of revenue receipts - around 80 per cent of the revenue receipts for interest payment, defence and the subsidy in 1998-99.

The heaviest burden was on account of interest payment, at around 49 per cent of revenue receipts for 1998-99, it said adding to generate revenue surpluses, structural changes should also be introduced on the expenditure side.

Stating that FRA should address the high risk faced by the Government in terms of the guarantees provided to the private investors, the rating agency said policy reforms were needed to reduce the potential risk of such guarantees.

``India further needs a suitable nodal authority with controlling power to ensure that the rules of the FRA are strictly abided by and the government is transparent and accountable to the public," it added.

- PTI

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