Current Affairs

ES 2014: Tough Measures to turn around India Economy

The finance ministry delivered the annual economic survey – prepared by senior economic advisor Ila Patnaik – on the state of Asia’s third-largest economy a day before Modi’s new government presents its first budget.

Following are highlights of the report:

FISCAL DEFICIT

* India needs sharp fiscal correction

* Fiscal situation of the central government is worse than it appears

* Need for subsidy reforms for fiscal consolidation

* Recommends raising tax-to-GDP ratio for fiscal consolidation

* Shortfall in revenues can be contained through better mobilisation and reforms

GROWTH

* GDP growth seen at 5.4-5.9 percent in 2014/15

* Economic growth of 7-8 percent not seen before 2016/17

* Downward risk to economic growth due to poor monsoon, external factors

INFLATION

* Government needs to move towards low and stable inflation through fiscal consolidation

* Wholesale Price Index (WPI) inflation expected to moderate by end-2014

* Consumer Price Index (CPI) inflation showing signs of moderation

* Needs to create a competitive national market for food

CURRENT ACCOUNT DEFICIT

* 2014/15 current account deficit may be contained to around $45 billion or to 2.1 percent of GDP

* External debt remains within manageable limits

BALANCE OF PAYMENTS

* Improvement in balance of payments position during late 2013-14 was swift thanks to import restrictions and economic slowdown

* Need to adjust to advanced economies’ eventual exit from accommodative monetary policy stance

SUBSIDIES

* Rationalization of subsidies such as fertilizer and food essential

* Need to shift subsidy programme from price subsidies to income support

TAXATION

* Government needs to move towards simple tax regime, fewer tax exemptions and single rate of goods and services tax (GST)

* GST to play vital role in indirect tax reform

* Direct Taxes Code (DTC) required to replace existing income tax laws; will reduce compliance costs and boost tax collection

FOREX MARKET

* Intervention in forex market by Reserve Bank of India is behind accumulation of reserves “generally”

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