 "FinMin blames RBI policy, project clearance lag for economic slowdown")
Pointing out that India witnessed a rate of GDP growth of 9.3% in 2010-11, the finance ministry said,"strong monetary response by RBI during most of 2011-12 to curb inflation along with bottlenecks such as obtaining environmental clearances, land acquisition might have led to a slowdown in investment, and the lower growth rate of 6.2% in 2011-12 and 5% in 2012-13."
In a medium term expenditure framework statement tabled in Parliament, the ministry said while several steps have been taken by the government in recent months to improve investor sentiment and address the slowdown in growth as well as the fiscal situation, the global economic scenario is yet to witness decisive improvement.
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It quoted July 2013 update of World Economic Outlook published by International Monetary Fund to buttress its point of view. According to the Outlook, the growth rate of the World output has slowed from 3.9% in 2011 to 3.1% in 2012. The growth of the advanced economies has declined from 1.7% in 2011 to 1.2% in 2012.
"However, signs of economic recovery are emerging in the USA...the Euro zone is in recession with high levels of unemployment," the ministry said.
The statement, laid under the Fiscal Responsibility and Budget Management (FRBM) Act, did not say whether economic growth assumed at the time of the budget would hold good even now. It stopped at saying that the Budget had assumed GDP growth in the range of 6.1% to 6.7% for 2013-14.
"The higher growth rate in 2013-14 vis-a-vis 2012-13 assumed normal monsoon, further moderation in inflation, mild recovery in global growth and measures undertaken by the Government to improve investor sentiment and fiscal situation," it said.
The fiscal consolidation road map given by the finance ministry targets to cut the Centre's fiscal deficit to 4.8% of GDP in 2013-14 from 4.9% in 2012-13 and further to 4.2% in 2014-15 and 3.6% in 2015-16.
In the process of achieving these fiscal targets, it has been estimated that outstanding liabilities as percentage of GDP will be reduced to 42.3% in 2015-16 from the level of 45.7% estimated for 2013-14.
Further Gross Tax revenue (before devolution of State share) as a percentage of GDP will progressively rise to 11.5% by 2015-16 from the level of 10.9% estimated in Budget 2013-14, the statement said.
Increase from Tax to GDP ratio of 10.9% to 11.5% requires an average annual growth in gross tax collection of 17.5% and an average tax buoyancy of 1.23.
It has to be kept in view that in the past Tax to GDP ratio of 11.9% has been achieved in 2007-08. This was backed by an average tax growth rate of nearly 21.3% in the period 2003-08. In pre-crisis period, growth in gross tax revenue for 2006-07 and 2007-08 was 28.9% and 25.3% respectively.
These reforms were driven mainly by direct taxes, whose average annual growth rate during 2003-08 was about 28%. The buoyancy of tax revenue with respect to GDP was nearly 1.5 during this period.
"Therefore, fiscal consolidation strategy of Government primarily hinges on reclaiming high growth in gross tax revenue achieved in the past. This is also essential for creating space for financing various welfare programmes of Government," the statement said.
The statement said one of the risks to its assumptions on revenue side could be disturbed by the 14the finance commission as its recommendations would come into effect from 2015-16.
The statement assumes devolution pattern of the 13th Finance Commission for making projections for 2015-16.