Punjab Begins Fiscal Consolidation As Debt Nears Rs 100,000 Crore


Increased VAT on soft drinks and cigarettes to yield Rs 180 crore!

CHANDIGARH – Punjab has started taking baby steps to consolidate its fiscal position, with Finance Minister Parminder Singh Dhindsa announcing an increase in value added tax (VAT) rates on cigarettes and soft drinks to mop up additional Rs 180 crore in taxes, while presenting the Budget proposals for 2013-14. However, the Finance Minister has failed to come up with a definite plan to resurrect the sagging economy of the state, whose debt burden is set to cross Rs 1 lakh crore by the end of 2013-14.

The hike in VAT rates announced by the Finance Minister will do little to get the state’s economy back on the rails. The initiatives of increasing VAT on soft drinks from 13 to 20.5 per cent and on cigarettes from 20.5 per cent to 50 per cent; and the announcement of a voluntary compliance scheme for VAT and excise duty seem unlikely to help the state bring down its revenue deficit by Rs 3,011 crore in a year, as has been projected by the Finance Minister. Like in the past, the state will continue to rely mostly on better tax compliance, realisation or bringing in austerity measures to curtail its deficit, it seems.

Presenting the Budget proposals, Dhindsa said the emphasis was on fiscal consolidation of the state’s economy. With Punjab now falling in line with the road map laid for it by the 13th Finance Commission with regards to fiscal deficit and outstanding debt to GSDP (gross state domestic product) ratio, the emphasis during the next financial year (2013-14) would be on reining in the huge revenue deficit.

The projections made in the Budget show that the fiscal deficit is expected to come down from Rs 9,395 crore this year to Rs 9,258 crore in 2013-14 (3% of the GSDP).The minor fiscal correction will rest on the hope of higher VAT collections and a slight reduction in the revenue expenditure. The ratio of outstanding debt to the GSDP will, however, increase from 31.35 per cent of the GSDP (Rs 92,804 crore) to 33.13 per cent of the GSDP (Rs 1,02,282 crore), though it is well within the limit of 39.8 per cent of the GSDP for 2013-14, as prescribed by the Finance Commission.

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