New Delhi: Finance Minister Arun Jaitley on Wednesday presented the Economic Survey 2014-15 in the Lok Sabha and pointed towards the worsening Fiscal situation. He said that the fiscal deficit for 2014-15 year is projected at 4.5 per cent of Gross Domestic Product (GDP). He assured that the government will work hard to reduce the deficit over the next two years. Narendra Modi's government has called for tough measures to shore up public finances and reduce inflation.
"Fiscal deficit for 2014-15 year is projected at 4.5 per cent of GDP", said Jaitley.
Many economists believe the last government's accounting understated the size of the deficit, and Jaitley will need to present a credible recovery plan to keep the ratings agencies onside.
The newly-released Economic Survey "shows the gravity of the economic situation that needs correction," Jaitley said after ceremonially placing the report on a table in Parliament.
Wednesday's report recommended tackling food and fertiliser subsidies to lower spending while broadening the tax base. India's tax collection is less than 9 per cent of GDP, a quarter of the average in the OECD group of developed nations.
"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 the large unmet development needs," the report said.
To balance the books, Jaitley is expected to set a high target in the Budget for the sale of government-held assets in state-run and private companies.
Indian markets seemed reassured by the stern tone on fiscal consolidation. Stocks reversed earlier losses, while the 10-year bond yield eased to around 8.69 per cent from 8.73 per cent before the report.
Asia's third-largest economy has been stuck in its longest rut in a quarter of a century - with growth below 5 per cent - while Modi's government has been dogged by a food-price spike in its early weeks.
The survey also points out at the downside risks to the economy arising from a poor monsoon, the external environment and the poor investment climate. After recovering in 2009-10 and 2010-11 from the crisis and growth slowdown of 2008-09, GDP growth slowed to below 5 per cent for two consecutive years, i.e. 2012-13 and 2013-14.
The survey notes that external sector witnessed a remarkable turnaround after the first quarter of 2013-14 and the year ended with a Current Account Deficit of 1.7 per cent of GDP as against 4.7 per cent in 2012-13. Improvement is also observed on the fiscal front, with the fiscal deficit declining from 5.7 per cent of GDP in 2011-12 to 4.9 per cent in 2012-13 and 4.5 per cent in 2013-14.
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