Economic Survey: Govt calls for fiscal consolidation

NEW DELHI Thu Mar 15, 2012 3:09pm IST

Labourers erect a temporary shelter for Hindu devotees ahead of Magh Mela festival in Allahabad December 1, 2008. REUTERS/Jitendra Prakash/Files

Labourers erect a temporary shelter for Hindu devotees ahead of Magh Mela festival in Allahabad December 1, 2008.

Credit: Reuters/Jitendra Prakash/Files

Priyanka Gandhi Vadra, daughter of Congress party chief Sonia Gandhi, adjusts her flower garlands as she campaigns for her mother during an election meeting at Rae Bareli in Uttar Pradesh April 22, 2014. REUTERS/Pawan Kumar

Election 2014

More than 814 million people — a number larger than the population of Europe — are eligible to vote in the world’s biggest democratic exercise.  Full Coverage 

NEW DELHI (Reuters) - The government needs to boost tax revenues and cut expenditure to rein in a burgeoning fiscal deficit and help cool inflation pressures and bolster longer term growth, the government said in a survey on Thursday, a day before the annual budget.

New Delhi is expected to miss this fiscal year's deficit target of 4.6 percent of GDP by a wide margin, and it faces a difficult task to cut a soaring subsidy bill and revive slowing growth.

A yawning fiscal shortfall is not only making credit dearer for private investment, it is also foiling the central bank's efforts to control inflation.

The Reserve Bank of India left interest rates unchanged on Thursday, warning of resurgent inflation risks from surging crude oil prices, fiscal slippage and rupee depreciation.

(Read: RBI keeps interest rates unchanged, click here)

"While an expanded deficit can boost consumption and economic growth, this is medicine akin to antibiotics. It is very effective if properly used and in limited doses, but can cause harm if used over a prolonged period," the economic survey by the finance ministry said.

It suggested an increase in tax rates to boost tax-to-GDP ratio to 13 percent by 2016/17 from 10.5 percent currently. It also favoured a cap on the fuel subsidy, which has already topped 536 billion rupees this year -- more than double the target for 2011/12.

The recommendation comes at a time when Prime Minister Manmohan Singh's government is facing a political storm for raising railway passenger fares on Wednesday for the first time in eight years.

In a country where populist policies are often rewarded with electoral gains, any decision to tinker with subsidies and tax rates could test the Congress party-led ruling coalition's political nerve.

Finance Minister Pranab Mukherjee is widely expected to unveil measures to trim the fiscal gap when he presents the annual budget. But much will depend on the government's resolve to cut its subsidy bill.

The economic survey said a lower fiscal deficit will help investments to rebound quickly.

Economic growth faltered to a three-year low of 6.1 percent in the December quarter following a contraction in investment, and the pace of economic expansion this fiscal year is forecast to dip below 7 percent for the first time in three years.

Capital investment has dropped to 30 percent of GDP in the fiscal year ending on March 31 from 32 percent a year ago.

The economic survey, however, forecast a pick up in the economy in 2012/13 as it expects fiscal consolidation along with lower inflation will help investments recover.

It expects annual economic growth to be about 7.6 percent in 2012/13 and 8.6 percent in the year after.

(Writing by Rajesh Kumar Singh; Editing by Ranjit Gangadharan)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

RAINFALL THIS YEAR

REUTERS SHOWCASE

Election 2014

Election 2014

Thousands mob Modi as election race starts in Varanasi.  Full Article 

Monsoon Forecast

Monsoon Forecast

Met office rules out surplus monsoon in 2014.  Full Article 

Facebook's Performance

Facebook's Performance

Facebook Q1 revenue grows 72 percent on rising mobile ads.  Full Article 

Earnings Season

Earnings Season

Bharti Infratel Q4 net profit jumps 64 percent.  Full Article 

Solar Dispute

Solar Dispute

Green groups urge U.S. to drop solar trade case against India.  Full Article 

Oil Imports

Oil Imports

India to make May-July oil payments to Iran - sources.  Full Article 

Rice Exports

Rice Exports

India may cede top rice exporter spot under Southeast Asian price onslaught.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage