Growth to be hit by fiscal problem

ECONOMIC SURVEY 2003-04/ STATE OF THE FISC

The Economic Survey has warned that the continuation of the present fiscal situation would adversely affect the country's growth prospects.

The combined fiscal deficit of the Centre and states crossed 10 per cent of the gross domestic product (GDP) in 2002-03, higher than the pre-reform level of 9.4 per cent. It was budgeted at 9.4 per cent of the GDP or Rs 2,59,265 crore in 2003-04.

According to the Survey, if private investment picked up "" signs of recovery are already visible "" any undue pre-emption of resources by the government to fund its deficits may lead to a firming up of interest rates and inflation.

Rising oil prices and firming up of global input prices has already led the Wholesale Price Index-led inflation for the week-ended June 19 to touch 5.87 per cent.

While several initiatives have been taken to address the problems, they need to be stepped up. "While reforms can be designed better when the economy is doing well and there is no crisis, mobilising popular support for such reforms is a challenge in the absence of an impending crisis," the Survey said.

In fact, fiscal consolidation has been listed as one of the five major challenges before the Indian economy by the Survey.

It has stressed that the elimination of the revenue deficit through revenue enhancement and expenditure management are vital ingredients for sustained growth.

In a country like India which has a single-digit tax-GDP ratio (9.2 in 2003-04), tax augmentation should be the prime concern.

Hence, there was a clear need to overhaul the regime of exemptions, reduce the number of notifications, simplify procedures and move towards a paperless and transparent administration.

It was equally important to establish a rigorous penal and enforcement mechanism to take care of those who voilate the trust imposed, the survey said.

Further, innovative tax laws and procedures need to be evolved to prevent large-scale evasion-prone cash transactions which hinder the process of business re-engineering of tax administration.