The Economic Survey has projected India’s economic growth of above 6 per cent for the fiscal 2013-14 besides a lowered inflation projection of below 6.6 per cent by March even as it calls for macro-economic stabilisation to check price rise and burgeoning deficit.
The Survey, an annual document of the Ministry of Finance that prescribes steps for the government to deal with the economy, has pitched in for hike in price of diesel and cooking gas to cut subsidy burden, but warned against large expenditure curbs to check fiscal deficit. This is quite contrary to the move the government has of late adopted to bridge the fiscal gap.
It projected the GDP growth between 6.1 and 6.7 per cent in the next fiscal beginning April 1, but said the growth has to be job oriented and aimed at reducing poverty. The growth projection was, however, contested by various economists, who said given the current global slowdown and India’s falling macro-economic indicators, the current estimation was “over optimistic.”
While in the medium term, the Survey found the government’s fiscal consolidation plan to be a credible one to help it achieve the fiscal deficit target of 5.3 per cent for the current year, in the long run, it said the government will have to figure out ways of increasing tax revenues.
“It is better to achieve fiscal consolidation partly through a higher tax-GDP ratio than merely through reduction in the expenditure to GDP ratio, in view of large unmet development needs… higher and higher tax rates impinge more and more on incentives to undertake taxable activity, while encouraging tax evasion,” the Survey said.
It also noted that slower economic growth has had its impact on the gross tax collection this year. Revenue collection target for 2012-13 is likely to be significantly below target.
Given the limited room for growth in exports due to constrained global environment, the Survey said the only way the current account deficit can be kept under check was by reducing imports of gold and oil.
“The room to increase exports in the short run is limited. The main focus has to be on curbing imports, mainly by making oil prices more market determined and curbing imports of gold to contain current account deficit,” it said.|
Another important objective echoed by the Survey was the need for the economy to shift from consumption to investment and emphasised that investment-led growth was possible only if savings, especially the government and household financial savings were increased.
The prescription assumes importance in the wake of India’s savings taking a major hit of around 7 per cent of GDP since 2008.
India’s savings rate, which was 37 per cent of the GDP in 2008, is expected to come down drastically to 30 per cent in 2013.
The Survey also stated that the current slowdown in the economy was a wake up call for increasing the pace of actions and reforms.
In a nutshell
Economic growth pegged at 6.1 - 6.7 % in 2013-14
March 2013 inflation estimated at 6.2 - 6.6 %
* Priority will be to rein in high inflation
* FDI in retail to pave the way for investment in new technology and marketing of agriculture produce
* Survey calls for widening tax base and prioritising expenditure to bridge fiscal deficit
* Suggests curbing gold imports to contain current deficit
* Aadhaar-based direct cash transfer scheme to help plug leakages in subsidies
* With subsidies bill increasing, danger of missing fiscal targets is real in FY13
* Overall energy deficit is about 8.6%, peak shortage of power is about 9%
* Infrastructure bottlenecks affecting industrial sector