Painting a not-so-rosy picture of the economy, the pre-Budget Economic Survey today spoke of the “danger” of missing fiscal targets in the current year which may clock only 5 per cent growth against the projected 7.6 per cent and made a case for widening of tax base and cutting of subsidies.
Against the backdrop of speculation over proposals for taxing super-rich and on inheritance, the Survey cautioned against raising taxes.
Outlook for 2013-14
The Survey, tabled by Finance Minister P. Chidambaram in Parliament, projected an optimistic growth rate of 6.1-6.7 per cent for 2013-14 claiming that the downturn is more or less over and the economy is looking up.
The economic growth rate in the current financial year is expected to slip to decade's low of 5 per cent from 6.2 per cent in 2011-12 and 9.3 per cent a year before that.
The Survey last year had projected the growth rate for 2012-13 at 7.6 per cent.
“These are difficult times but India has navigated such times before and with good policies it will come through stronger,” Chief Economic Advisor Raghuram G. Rajan, the lead author of the Survey, told the media later.
To meet the challenges of the economy, he prescribed shifting national spending from consumption to investment, removing the bottlenecks to investment, growth and job creation, besides making efforts to reduce cost of funds.
On the issue of rising subsidy bill, the Survey said, “the danger that fiscal targets would be breached substantially become very real in the current year“.
Fiscal deficit
The Government had pegged the fiscal deficit, an indicator of public finances, at 5.1 per cent for the Gross Domestic Product (GDP) for 2012-13. Chidambaram later revised it to 5.3 per cent in view of rising expenditure and subdued revenue collection.
The Minister had proposed to bring it down to 4.8 per cent for 2013-14. Some announcements in this regard could be made in the Budget to be unveiled in Lok Sabha tomorrow.
While cautioning against raising tax rates, Survey said that in order to augment revenue the government should make efforts to widening tax base and cutting subsidies, particularly on petroleum products, to reduce expenditure.
Taxes
“It is much better to achieve a higher tax-GDP ratio by broadening the base which is taxed rather than increasing marginal tax rates significantly—higher and higher tax rates impinge more and more on incentives to undertake taxable activity, while encouraging tax evasion,” it said.
The remarks assume significance in view of the suggestions from certain quarters including Prime Minister’s Economic Advisory Council (PMEAC) to impose higher taxes on super rich.
Expenses on subsidies
According to the Survey, “controlling the expenditure on subsidies will be crucial. The domestic prices of petroleum products, particularly diesel and LPG need to be raised in line with their prices prevailing in the international market.”
Referring to the price situation, the Survey said that elevated food inflation would continue to remain an area of concern with inflation rate gradually inching towards double digit in December 2012.
The headline inflation, it said, is expected to decline to 6.2 to 6.6 per cent by next month.
Other concerns
The other concerns highlighted by the Survey include widening Current Account Deficit (CAD) mainly on account of high gold imports, absence of clear signs of revival of economic activities and lack of assured supply of raw material to projects especially in the power sector.
It, however, expressed the hope that measures announced by the Government in the recent months would help in restoring the fiscal health of the government and check widening CAD.
The government has recently partially deregulated diesel prices, allowed FDI in multi-brand retail and liberalised foreign investment norms for various sectors.
“With the global economy also likely to recover somewhat in 2013, these measures should help in improving the Indian economy’s outlook for 2013-14”, the Survey said.