Curing the cancer of concessions

By now it is clear that India faces a difficult fiscal environment at present and the medium-term challenges are formidable. The indications are that the central government’s fiscal deficit target is likely to slip by one percentage point and at the state level, although the consolidated deficit is within the Finance Commission’s target, the power sector losses add to the problem. The consolidated deficit excluding the power sector losses for 2011-12 would be close to 8% of GDP (9% of GDP) and this has to be brought down to 5.4% in 2014-15. In addition to this 2.6 percentage point adjustment, there will be additional demands for spending on healthcare, education and food security, which could result in an additional 3% of GDP. Thus, the required fiscal correction in the next three years would be 5.5-6% of GDP and at the central level alone it could be 4-4.5%.

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