How might this further reduction of the fiscal deficit come about? Looking back, the
consolidated deficit dropped by 3.27 percentage points from 2001-02 to 2006-07, an im-
provement of 0.65 percent of GDP per year. How might we go forward, and obtain an
additional reduction in the consolidated deficit of roughly five15 percentage points? Two
elements of a fiscal strategy are visible. The introduction of the Goods and Services Tax
(GST) can lead to an improvement of the tax-GDP ratio of roughly two percentage of GDP.
The deployment of information technology for the purpose of delivering cash subsidies to
poor people could support a large reorganisation of government expenditures, yielding a
reduction in expenditure of three percent of GDP. Put together, these two strategies offer
the prospect of obtaining the required gain.
15Roughly speaking, what is required is going from a consolidated deficit of 6.36% in 2006-07 to a value
like 1% of GDP under buoyant business cycle conditions.
23
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