Survey flags fiscal issues, stresses consolidation

This fiscal has been a forgettable one for the economy, but the next two would see it slowly spring back to pre-2009 growth levels, the official economic survey said on Thursday.

Economic growth fell to a three-year low of 6.1% in the December quarter following a contraction in investment, and is expected to be below 7% for the full year.

Growth will improve to 7.6% in 2012/13 and 8.6% in the year after, said the survey.

Boosting tax revenues and cutting expenditure to bridge the widening fiscal deficit and helping cool inflation could help the economy return to its growing ways, it said, calling for rapid fiscal consolidation.

“If we want to keep inflation down and post robust growth, we have to aim for rapid fiscal consolidation,” said the report, tabled in Parliament by finance minister Pranab Mukherjee.

For the April-January period, fiscal deficit was 105% of the budgeted 4.6% of gross domestic product.

“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 over a prolonged period of time,” said the survey.

A lower fiscal deficit will help investments to rebound quickly, it said.

The survey also called for policies to tackle high energy prices.
So far this year, India’s crude basket has averaged about $111.31 per barrel compared with $85.09 a year ago.

It flagged the possibility of unrelenting crude oil prices sending subsidies up further.

Fuel subsidy for this fiscal has already topped `53,600 crore, more than double the target.

Total subsidy bill for the year is likely to be above Rs2 lakh crore compared with the Budget estimate of Rs1.43 lakh crore.

The survey mooted an increase in tax rates to boost the tax-to-GDP ratio to 13% by 2016-17 from the current 10.5%.

A new chapter called sustainable development and climate change has been included this year in an effort to make the economic survey more comprehensive and relevant, said Kaushik Basu, chief economic advisor, Ministry of Finance. He also hoped for early implementation of new land acquisition and labour laws.