India's Fiscal Cliff - A Daunting Future Ahead

The World now seems glaringly concerned with impending Fiscal cliff in USA due on January ,2013 if the Obama Adminstration doesn’t come with a concrete fiscal plan to tackle the humoungous national debt it is  surmounted now & deep recession plaguing many nations of Eurozone. But ,a bigger problem seems to ensue India, world’s second fastest economy  which is now trapped in a High Inflation Low Growth cycle and makes it difficult for the Indian govt to achieve it targets  through fiscal consolidation every time proposed for the last decade.
Problems ,according to experts is Fiscal consolidation is driven through Revenue side whereas the condition is worsening from the Expenditure side.

  What is the Problem 
Govt is spending way above its capacity 

Which is resulting in High fiscal deficit

That is met with ever increasing borrowings.

What is the Reason 
1) Wasteful Spending arising out of the Populist measures by UPA govt.   

2) Developmental spending has decreased from 16.6% of total spending in 2007-8 to 13.7% in 2012-13.

3) Subsidies rising at a fast pace.

Consequence of High Fiscal Deficit
• Pushes up Interest rates, lowers private investment ,growth and employment.
• Increases Inflation and reduces room for monetary policy stimulus.
• Increases risk of external imbalances.
• Sovereign downgrade and flight of foreign capital.
• Weaken the rupee and negatively impact capital markets.
• There will be no room for counter-cyclical measures if global economy weakens.

 What can be done
• Rationalise Subsidies through 
 Better targeting of benefits to the needy.
 Increase administered prices and gradually make them market determined.
 Switching to direct cash transfer.
 Bring strong deterrent to power subsidies.

• Settle Loss-making cos that cause credit and cash crunch through recurrent losses – 96,710 crores was the total accumulated losses of state run companies.

• Go for Massive Asset sale to keep borrowings low
 15 lakh crore – Market capitalization of listed 45 state run companies.
 1.1 lakh acres – Surplus land with the railways with 10,000 acres in Urban centres.

• Reform Tax regime to Increase Taxes
 Build consensus and roll out GST quickly.
 Roll out measures to cut tax disputes.
 Simplify and cut corporate tax on prime industrial land worth thousands of crores.