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Government pegs economic growth at 5.5% this fiscal

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The mid-year economic analysis presented by the finance ministry on Friday said the fiscal deficit target for the current financial year at 4.1% of the Gross Domestic Product (GDP) is an ambitious one if seen in the context on the revenue side.

Chief economic advisor Arvind Subramanian, however, said the government is committed to meet the 4.1% fiscal deficit target even as the analysis blamed the 'legacy of the past' for the fiscal challenges being faced now. However, the government has pegged growth for this fiscal at 5.5%.

"For this year, we are committed to meet 4.1% fiscal deficit target. I think we will have to re-evaluate the fiscal strategies generally. We will have to take overall decisions," said Subramanian.

The analysis, however, maintained that the revenue constraints are weighing heavily on the fiscal figures. "The government is committed to meeting the fiscal target for FY2015, despite the difficult odds engendered by a combination of factors. How ambitious a target was this? Evaluating the budget from the revenue side suggests that the target was ambitious," the report said.

The unusual challenges facing the economy include slower-than-expected growth affecting revenue prospects, optimistic revenue projections in the budget not having materialised and the legacy of past expenditures weighing on the budget. In the first eight months of the fiscal, the government has achieved only 52% of the targeted revenue of Rs 6,23,244 crore on the indirect tax front.

According to the ministry of finance, the government has earned indirect tax revenue of Rs 3,28,662 crore during the first eight months of the fiscal. This essentially means that the government has only four months to achieve the remaining 50% of the targeted sum. Interestingly, the fiscal deficit has reached 83% of the target for FY 2014-15 in the first six months of the fiscal only. Overall tax revenue is likely to fall short by Rs 105,000 crore.

Growth, meanwhile, seems intact. "The overall growth outlook has improved considerably. The possibility of public investment being an engine of growth, should be given more serious consideration," Subramanian added.

"The growth deceleration witnessed for many years appears to have bottomed out. A durable recovery in investment and growth is a work-in-progress. Uncertainty about private investment stems from a relatively weak corporate sector (depressed or negative profits and high debt) and because the PPP model in infrastructure is in limbo. This condition might be characterised as a "balance sheet syndrome with Indian characteristics," the analysis said.

"To revive growth going forward, public investment may have to play a greater role to complement and crowd-in private investment. Consideration should be given to pursuing counter-structural fiscal policy as a way of reviving growth, and to finding the fiscal space to finance such investment, while ensuring that projects are judiciously identified and effectively and expeditiously implemented," it added.

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