The Kelkar Committee - roadmap for fiscal consolidation

 the Kelkar Committee published a roadmap for fiscal consolidation.

• The report stresses the need and urgency to address India's fiscal deficit.
• A high fiscal deficit – the excess of government expenditure over receipts – can be problematic for many reasons.
• The fiscal deficit is financed by government borrowing;
•  increased borrowing can crowd out funds available for private investment. 
• High government spending can also lead to a rise in price levels. 
• Last year (2011-12), the central government posted a fiscal deficit of 5.8% (of GDP), significantly higher than the targeted 4.6%.  This is in stark contrast to five years ago in 2007-08, when after embarking on a path of fiscal consolidation the government's fiscal deficit had shrunk to a 30 year low of 2.5%.
• With growth slowing this year, the committee expects tax receipts to fall short of expectations significantly and expenditure to overshoot budget estimates, leaving the economy on the edge of a "fiscal precipice".
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Committee recommendations – expenditure

• To tackle the deficit on the expenditure side, the committee wants to ease the subsidy burden.
• The committee also recommends phasing out the subsidy on diesel and LPG by 2014-15. 
• For the fertiliser subsidy, the committee recommends implementing the Department of Fertilisers proposal of a 10% price increase on urea.

Committee recommendations – receipts

• Rising subsidies have not been matched by a significant increase in receipts through taxation: gross tax revenue as a percentage of GDP has remained around 10% of GDP 
• TThe committee seeks to improve collections in both direct and indirect taxes via better tax administration
• The committee feels that the pending Direct Tax Code Bill would result in significant losses and should be reviewed. 
• To boost income from indirect taxes – the tax on goods and services – the committee wants the proposed Goods and Service Tax regime to be implemented as soon as possible.
• Increasing disinvestment, the process of selling government stake in public enterprises, is another proposal to boost receipts.
• The committee believes introducing new channels  for disinvestment would ensure that disinvestment receipts would meet this year's target of Rs 30,000 crore.

Taken together, these policy changes, the committee believe would significantly improve India's fiscal health and boost growth. 

• .new channels
•  'call option model
•  This is a mechanism allowing  the government to offer for sale multiple securities over a period of time till disinvestment targets are achieved.  Investors would have the option to purchase securities at the cost of a premium. 
• 'exchange traded funds
•  which would comprise all listed securities of Central Public Sector Enterprises and would provide investors with the benefits of diversification, low cost access and flexibility

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