Economic Survey stresses need for fiscal consolidation to tame inflation
The government on Thursday gave a clarion call for urgent economic reforms while conceding that corruption scandals and compulsions of coalition politics have slowed down the decision-making process, as a result of which it is faced with fiscal slippages in 2011-12.
Making a strong pitch for raising tax resources and higher compliance, the Economic Survey 2011-12, tabled in Parliament on Thursday in tandem with the Reserve Bank in its mid-quarter policy review, expressed serious concern over the deteriorating state of government finances and stressed the need for fiscal consolidation if inflation is to be tamed.
Highlighting inflation and fiscal slippages as among the major challenges confronting the economy, the Survey said a slackening in the pace of reforms and high-profile corruption scandals along with “welcome civil society activism” have led to delay in decision-making by civil servants.
Tabled in the Lok Sabha by Finance Minister Pranab Mukherjee, the Survey said “coalition politics and federal considerations played their roles in holding up economic reforms on several fronts, ranging from diesel and LPG pricing to FDI in retail” and also pointed to the economic slowdown partly resulting from domestic issues “like pressures of democratic politics.”
In concert with the apex bank on the need for fiscal consolidation, the Survey said: “The principal way in which this has to be achieved is by raising tax-GDP ratio and cutting down wasteful expenditures.”
The Survey noted that the dismal economic performance this fiscal should be a “wake-up call” but, at the same time, expressed cautious optimism that the GDP growth in 2012-13 would go up to 7.6 per cent following a moderation in inflation and consequent low interest rates.
“The growth rate of real GDP [is expected] to pick up to 7.6 per cent [plus or minus 0.25 per cent] in 2012-13 and faster beyond that,” the Survey said and noted that economic expansion this fiscal would moderate to a three-year low at 6.9 per cent.
Arguing out a case for fiscal consolidation, tax reforms, opening of the multi-brand retail to global chains, freeing of diesel prices and the need for honesty among political leaders and policy-makers, the Survey said that although government's fiscal deficit was likely to significantly go off the target of 4.6 per cent of GDP this fiscal, it would narrow down to 4.1 per cent in 2012-13 on the strength of a pick-up in economic activities.
After tabling the pre-budget document, the Finance Minister said: “It [the Survey] charts economic development and challenges faced during the fiscal year. It is a vital input for the preparation of the budget.”
At a press briefing later during the day, Chief Economic Adviser Kaushik Basu, prime architect of the document, said growth in manufacturing and agriculture sectors were likely to be key drivers in the next fiscal.
“There could be one more year of a slight slowing down of investment and saving rates. We expect... rates to pick up handsomely after that,” he said.