The annual economic survey said the government must ensure a low and stable inflation rate through fiscal consolidation, establishing a monetary policy framework and creating a competitive national market for food. Photo: Mint
Asit Ranjan Mishra : Live Mint : 9 July 2014
The survey emphasizes on reviving investments by improving long term-growth prospects
New Delhi: The Indian economy is expected to expand between 5.4% and 5.9% in 2014-15, faster than the sub-5% growth in the past two fiscal years, according to the Economic Survey 2014 released by the Narendra Modi-led government on Wednesday.
The survey emphasized on reviving investments by improving long term-growth prospects. “For this, reforms are needed on three fronts: creating a framework for sustained low and stable inflation, setting public finances on a sustainable path by tax and expenditure reform, and creating the legal and regulatory framework for a well-functioning market economy,” it added.
The survey said the government must ensure a low and stable inflation rate through fiscal consolidation, establishing a monetary policy framework, and creating a competitive national market for food. “Initiation of reforms on these fronts will reduce inflation uncertainty and restore a stable business environment. Further lower inflationary expectations would increase domestic household financial saving and make resources available for investment,” it added.
To put public finances on a sustainable path, the survey said India needs sharp fiscal correction, a new Fiscal Responsibility and Budget Management (FRBM) Act with teeth, better accounting practices, greater transparency and improved budgetary management. “Improvements on both tax and expenditure are needed to obtain high quality fiscal adjustment. The tax regime must be simple, predictable and stable. This requires a single-rate goods and services tax (GST), fewer exemptions in direct taxes, and a transformation of tax administration,” it said.
The survey said reforming government expenditure would involve three elements: shifting subsidy programmes away from price subsidies to income support, a change in the focus of government spending towards provision of public goods, and a focus on outcomes through an improvement in systems of accountability. “A focus on health and education outcomes, rather than inputs and expenditure must be a priority,” it said.
To put in place the legal foundations of a well-functioning market economy for India, the government needs to remove existing restrictions where there is no market failure and building state capacity to allow businesses to operate in a stable environment. “This will help improve the ease of doing business. While product markets have seen reform in India, there is a pressing need to reform factor markets such as those for land, labour and capital. Reforming the financial sector would involve reducing financial repression through which the state usurps a large share of household financial savings, financial sector regulatory reform and changing the laws and regulations governing the flow of foreign capital into India,” it said.
