With economic activity not picking up at the desired pace and tax revenue staying sluggish, the government had last year redrawn the fiscal consolidation road map by stretching the time to reach the fiscal deficit figure of 3 per cent of GDP from two years to three years. Moderate growth in the invisibles surplus, coupled with lower trade deficit, resulted in lower CAD of USA $ 26.8 billion (1.3 per cent of GDP) in 2014-15 and United States $ 14.4 billion (1.4 per cent of GDP) in first half of 2015-16.
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Direct taxes grew by 10.7 per cent in the first 9 months of 2015-16 while indirect taxes were also buoyant, it points out.
For that reason, the survey noted that the implementation of the Goods and Services Tax (GST), while highly desirable and necessary, will have limited impact in furthering the broader objective of citizen participation, state building and democratic accountability.
“There is a need to rationalise fertilizer subsidy in an input, crop and region neutral format and minimise diversions”, said the Economic Survey 2015-16 authored by Chief Economic Advisor Arvind Subramanian, tabled in parliament.
Raising pay for 10 million federal employees would not destabilise prices, the report said, while low inflation has taken hold, leaving room for the Reserve Bank of India to cut interest rates further if needed. The Survey could also throw some light on the further easing of capital account convertibility and move towards making the rupee an worldwide currency.
The pre-Budget document also proposed widening the tax net from 5.5 per cent to more than 20 per cent and favoured a review and phasing out of tax exemptions.
Admitting that India’s education quality is worsening, the Economic Survey on Friday called for “more investment in human capital” in order to arrest the trend and improve healthcare delivery. Being the main driver of the economy, the sector contributed about 69 per cent of the total growth during 2011-12 to 2015-16 and in the process expanding its share in the economy by 4 percentage points from 49 to 53 %.
This year’s Survey proclaims the Indian economy to be a “haven of macroeconomic stability, resilience and optimism” while being tempered by pointing out that critical short-term challenges that await us include the “twin balance sheet problem: the worsening financial positions of public sector banks and corporate houses”.
The government, it added, has been able to pursue meaningful reforms and deal with “palpable and pervasive” corruption.
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Elaborating on the global situation, it said that the upcoming budget and economic policy would have to contend with an unusually challenging and weak external environment.
