New Delhi: The government is committed to fiscal consolidation and will restrict fiscal deficit to 4.1 percent of the GDP in the current financial year, says the Economic Survey.
The pre-budget document also said that achieving the target is a "daunting task" in the backdrop only a moderate increase in indirect taxes and a large subsidy bill despite significant decline in oil subsidies burden in this fiscal.
The fiscal deficit target of 4.1 percent as envisaged in the Budget 2014-15 "will be met". Fiscal deficit is the gap between government expenditure and revenue.
"Should the revenues not pick-up sufficiently, there would be need to persist with some compression in expenditure so as to meet the deficit target," the survey tabled in Parliament said, adding going forward enhanced revenue generation will be a priority.
The survey said the implementation of Goods and Services Tax (GST) and other tax reforms would also play a crucial role in achieving enhanced revenue generation.
Overhauling the subsidy regime, it said, should entail further reducing fuel subsidies, tackling fertiliser subsidies, moving to Aadhaar based direct cash transfers of food subsidy would pave the way for expenditure rationalisation.
For April-December 2014, fiscal deficit stood at Rs 5.32 lakh crore which is 100.2 percent of Budget Estimates and higher than the last five years average of 77.7 percent.
It also said that the fiscal consolidation is a necessity but the quality is imperative to make it sustainable.
"To achieve this end, it would be necessary to put in place a medium to long term fiscal policy frame work with explicit revenue, expenditure and deficit target," it added.
The survey has recommended that borrowing should be only for capital formation and not to fund current expenditures.
There is a need to maintain a firm control on expenditure to achieve the targets and effect improvement in the quality of public expenditure, it said.
Subsequently, with current expenditure on a downward path and the quality of spending improving through a switch away from public consumption to investment, India?s growth, introduction of the GST, and the associated revenue buoyancy can comfortably ensure the attainment of medium-term targets, it added.
This buoyancy is assured by history because over the course of the growth surge over the last decade, the overall tax-GDP ratio increased by about 2-2.5 percentage points even without radical tax reform, it said.
The survey said the medium-term fiscal strategy is based on fundamental principles of fiscal policy, as well as on the need to maintain fiscal credibility.
"Short-term targets should be set accordingly. This would assist the Government to take the Indian economy back to a durably higher growth path," it said.
"These considerations are reinforced by legacy and credibility issues. Adhering to fiscal deficit target set earlier is essential to maintain credibility and provide policy stability," it added.
"There is no ground for complacency...The concrete actions in the Union Budget to implement the medium-term fiscal strategy outlined above would lead to a comfortable attainment of the medium-term targets," it said.
The loss in fiscal discipline led to the near-crisis in 2013 and on pure fiscal measures, India does not rank as favourably as its investment grade peers, it said.
To ensure fiscal credibility, and consistency with the medium-term goals, the upcoming budget should initiate the process of expenditure control to reduce both the fiscal and revenue deficits, it added.
