Due to the impending general election next year and the impact of a recession in United States on India’s growth, there could be a fiscal stimulus package in the coming budget. The stimulus could involve a major ramp up in public expenditure in order to enhance physical infrastructure and increased social sector spending. Fiscal impetus can also be provided through a cut in indirect tax rates. The Fiscal Responsibility and Budget Management (FRBM) Act mandates the government to decrease the fiscal deficit to at least 3 per cent and reduce revenue deficit to zero by March 2009.
However, the constraints on public expenditure substantially limit the government’s ability to fund flagship initiatives aimed at developing rural infrastructure and creating more jobs among other schemes. The government may provide a fiscal stimulus, but it should be done without sacrificing FRBM targets. Past experience has shown that higher transfer payments have not increased productivity capacity within the country. The government can also reduce incidence of indirect taxes, which stands at 30 per cent in India, as compared with 17 per cent in China. Public expenditure is expected to be sharply raised in the coming Budget. While the total Budgetary support for the central Plan increased by 22 per cent during 2007-08 (Budget estimate) as compared to 2006-07 (revised estimates), the 11th Plan (2007-12) envisages a 125 per cent increase in budgetary support for ministries and departments.
Issue of subsidy
The Indian government has decided to spend approximately Rs.1, 00,000 crore on the three, namely food, fertilizers and petroleum. Issue of subsidy in budget 2008 would also discuss matters related to the sources of livelihood. The Government feels that agriculture could not accommodate two thirds of the Indian population and serve as the sole food provider for such a large population.It was felt that new methods related to agricultural production ought to be worked out so that there is an increase in the agricultural productivity in the country.With regard to the issue of subsidy in budget 2008, it is decided that the right balance ought to be maintained pertaining to solutions worked out for the rural people as well as for the urban residents. Imbalances between urban as well as rural issues occur due to unequal provisions extended to the two sects of people.Energy security is another issue that will be taken up by the government in budget 2008 those measures will be adopted which could be sustained environmentally.