Finance Minister Pranab Mukherjee on Saturday maintained that despite the eurozone sovereign debt crisis and the slowdown in the U.S. having an adverse impact on India, the country's economic fundamentals were intact and the medium-term growth prospects remain buoyant.

Addressing the National Development Council (NDC) meeting here, Mr. Mukherjee said: “…while there may be some moderation in growth in the current fiscal, the fundamentals of the economy are intact and the medium-term growth prospects remain buoyant.''

Alongside however, with the country becoming increasingly globalised, it means that “when the world sneezes, India runs risk of catching a cold. Not surprisingly, the economic crisis in Europe and the slowdown in the U.S. are impacting us adversely,” he said.

Mr. Mukherjee pointed out that having embarked on a path of fiscal consolidation to bring down the fiscal deficit to 4.6 per cent of the GDP (gross domestic product) in 2011-12, the government did not have — unlike in 2008-09 — any elbow room for providing economic stimulus to halt the deceleration in growth.

The Finance Minister noted that the global economic uncertainties coupled with the weak business sentiment and persisting high inflation at home posed considerable challenges in firming up the Plan. Even as the States' finances in recent years had been improving steadily, tax revenues continued to be an area of concern which needed to be addressed. The States' tax to GSDP ratio, he said, showed wide variations. While the average tax to GSDP ratio was 6.7 per cent in 2008-09, the top two States had tax to GSDP ratio of 9 per cent and 8 per cent and the bottom two had 4.1 per cent and 4.2 per cent. “These ratios point towards the need for more work by many States to rationalise tax rates, improve compliance and widen the tax base,” Mr. Mukherjee said.

Turning to the power sector, the main plank of infrastructure development, Mr. Mukherjee asked the States to raise electricity charges to improve the financial health of power distribution companies which were facing difficulty in raising fund from banks owing to poor balance sheet.

As for the pending legislations on tax laws, Mr. Mukherjee hoped that while the Parliamentary Standing Committee would submit its report on the Direct Taxes Code by the winter session and the government would seek to obtain parliamentary approval during the budget session, the Constitutional Amendment Bill for ushering in the proposed Goods and Services Tax would require the support of all political parties. “I seek full cooperation of the states in supporting this Constitutional Amendment Bill to pave the way for the early introduction of GST,” he said.

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