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Fiscal Prospects and Reforms in India

Author

Listed:
  • Richard Herd

    (OECD)

  • Sam Hill

    (OECD)

  • Vincent Koen

    (OECD)

Abstract

Substantial fiscal consolidation was achieved under the aegis of the 2003 Fiscal Responsibility and Budget Management Act. While deficits widened anew in 2008 and 2009, against the backdrop of the global financial and economic crisis, efforts to reduce them have resumed since. To ensure continued progress, as well as stronger government finances in the longer term, the medium-term fiscal framework needs to be improved, notably by embedding the annual budget in a detailed three-year rolling programme. Expenditure needs to be controlled better, in particular as regards subsidies, which the central government has indeed been trying to rein in, though with difficulty in the face of rising world oil prices. Expenditure also needs to become more effective, in particular in the areas of health care, education and social assistance. On the revenue side, tax reforms have been tabled, both for direct taxes and for the complex and inefficient system of indirect taxes. Corporate income tax rates are being cut, though the headline rate remains high. Lower taxation for large special economic zones deserves to be maintained for some time. For the personal income tax, which only a fairly small proportion of the population pays, thresholds are set to be raised considerably. A goods and services tax is to be introduced, which should help reduce the segmentation of the national market for goods and services. Customs duties have been reduced on average but remain high for some categories of imports, implying scope for further reduction over time.This Working Paper relates to the 2011 OECD Economic Survey of India (www.oecd.org/eco/surveys/india) Perspectives et réformes budgétaires en Inde La loi de 2003 sur la responsabilité et la gestion budgétaires a permis d’avancer sur la voie de l’assainissement des finances publiques. Certes, le déficit s’est de nouveau aggravé en 2008-2009, du fait de la crise financière et économique mondiale, mais de nouvelles mesures ont été prises ensuite pour le réduire. Afin d’assurer la poursuite des progrès en ce domaine et de consolider la situation à plus longue échéance, il faut améliorer le cadre budgétaire à moyen terme, notamment en intégrant la loi de finances annuelle à un programme glissant, détaillé, étalé sur trois exercices. Il faut aussi mieux maîtriser les dépenses, en particulier les subventions, que l'administration centrale a d’ailleurs tenté de freiner, quoique non sans difficultés face à la montée des cours mondiaux du pétrole. Enfin, il est nécessaire de renforcer l'efficience des dépenses, surtout dans les domaines de la santé, de l’éducation et de l’aide sociale. En matière de recettes, des réformes ont été présentées ; elles portent à la fois sur la fiscalité directe et sur le système, complexe et inefficient, des impôts indirects. Les autorités sont en train d’alléger l'impôt sur les sociétés, bien que son taux nominal demeure élevé. Il convient de conserver pendant un certain temps les allégements en faveur des grandes zones économiques spéciales. S’agissant de l’impôt sur le revenu des personnes physiques, qui n'est acquitté que par une faible proportion de la population, les seuils d’imposition devraient être sensiblement relevés. Une taxe sur les biens et les services doit être mise en place, ce qui devrait réduire la segmentation du marché national. Les droits de douane ont été abaissés en moyenne, mais restent élevés pour certaines catégories d’importations, ce qui laisse des marges de réduction à l'avenir.Ce Document de travail se rapporte à l'Etude économique de l'OCDE de l’Inde 2011 (www.oecd.org/eco/etudes/inde)

Suggested Citation

  • Richard Herd & Sam Hill & Vincent Koen, 2011. "Fiscal Prospects and Reforms in India," OECD Economics Department Working Papers 911, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:911-en
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    File URL: http://dx.doi.org/10.1787/5kg0szw747tf-en
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    Keywords

    budgets des gouvernements; debt; dette; dépenses; expenditure; fiscal institution; fiscal policy; government budgets; Inde; India; institution budgétaire; pauvreté; politique budgétaire; poverty; saving; subsidies; subventions; tariffs; tarifs; taxation; taxation; transfers; transferts; épargne;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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