POVERTY REDUCTION STRATEGY TN

10 it is kept at 40 percent to accommodate both salary increases and additional
recruitment.
It is possible to maintain surplus on revenue account, by maintaining fiscal
deficit at a level of 3 percent and the ratio of outstanding liabilities relative to GSDP also
remains just a little less than 23 percent. It is also possible to substantially increase
capital expenditure as a percentage of GSDP to levels above 3 percent of GSDP. In other
words, it is consistent with the FRBM Act to considerably increase investment in
infrastructure as well as in health and education. Such fiscal restructuring will provide
stimulus to achieving MDGs based poverty reduction within the framework of fiscal
discipline.
3.6 Other Fiscal Reforms: From VAT to GST
For a better coverage of services at the state level, appropriate changes are required, to
enable the states’ to share potentially large and growing tax base. Given the magnitude
of the GSDP, such changes would be especially beneficial to the state economy. The
Government of India, vide a constitutional amendment has placed taxation of services
under Article 268A. The central and the state governments are now moving towards
implementation of a comprehensive GST. This will help the state governments both in
terms of real growth and more buoyant tax revenues.
i. User Charges and Non-tax Revenues
The state government particularly needs to look into the profile of user charges in
relation to the costs of providing various general, social and economic services,
particularly when the services are private in nature although publicly provided. Six areas
need focused attention are education, health, agriculture, irrigation, power, and
transport.
ii. Subsidy Reforms
Subsidy as a budgetary instrument of promoting social welfare has been overused, and
sometimes abused, leading to inefficiencies. The cost of subsidies has generally been
underestimated because most subsidies are hidden or implicit. In state budgets, only a
very small fraction of subsidies is shown explicitly as subsidies.
3.7 Monitoring Process of Reforms and Mid-course Corrections
The progress of reforms needs to be monitored each year. As soon as deviations from
the expected reform path are observed policy corrections should be introduced
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