Where have all the subsidies gone?
If one has a good idea of where we went wrong in the last five years, one can begin to project the future and what the finance minister might or might not be able to do on February 28. No matter what the source, the discussion and complaint has centred on the fiscal deficit. And the fiscal situation is dire — an increase of nearly 2 percentage points in the consolidated fiscal deficit in the last five years.
But the fiscal deficit is the net difference between revenues and expenditures. So, theoretically, the fiscal deficit can expand because of a shortage of revenues or an excess of expenditures or both. Consequently, depending on one's ideological preference, the emphasis is either on raising taxes or on cutting expenditure. And given a country like India, whose politicians and many of the glintelectuals (glitterati intellectuals) do not believe in any evidence based policy, the concentration is on raising taxes. The last two months have been dominated by discussions of how to raise tax revenue and, of course, "motherhood" dictates that one cannot go wrong by suggesting that the rich should pay more. If it is pointed out that the top 10 per cent of earners in the country pay for almost all of corporate and individual tax revenue, the refrain of the glintelectuals is: why can't they pay more?
Back-of-the-envelope calculations for the Indian economy are now made easier with several important numbers approaching 100 or multiples of 100 levels. Nominal GDP in 2012-13 is estimated to have been Rs 94.6 lakh crore (lc); for 2013-14, with 12 per cent growth, nominal GDP is estimated at Rs 106 lc. For the same year, poverty is forecast to be 220 million or 18 per cent of the population. This based on a Tendulkar poverty line equal to Rs 1,000 per capita per month (pcpm) and the average consumption level of the poor equal to Rs 834 (Rs 12,000 and Rs 10,000 on an annual basis).