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India, which is currently grappling with several challenges including high inflation, low investments and a slowdown in economic growth, must have a sharp focus on fiscal correction by bringing in tax and subsidy reforms among other things, the Economic Survey 2013-14 said.
The annual report card of the government, tabled in Parliament by finance minister Arun Jaitley on Wednesday, underlined the need to chalk out a new Fiscal Responsibility and Budget Management Act (FRBMA) with teeth and better accounting practices.
Fiscal consolidation and correction will not only help in bringing macro economic stability by containing inflation, it will also help in boosting investments and eventually set the stage for a low interest rate regime.
“A new FRBM Act is critical and will create better conditions for co-ordination between monetary and fiscal policy and also usher in a low interest rate regime,” DK Joshi, chief economist, Crisil told HT.
The survey further said that the priority of the new government must be to revive business sentiments and domestic macroeconomic balance to boost growth momentum while enhancing efficiency.
“CII supports the need for a fiscal consolidation roadmap backed by an FRBM Act with teeth, ensuring greater transparency and improved budget management to step up the quality of fiscal deficit by boosting capital expenditure,” said Chandrajit Banerjee, director-general, CII.
The FRBM Act, which came into effect in 2003, set a target for the government to bring down fiscal deficit to 3% of GDP by 2008 and improve macroeconomic management. Fiscal deficit stood at 2.54% of GDP by 2007-08 and the revenue deficit at 1.05%. However the act was suspended in 2009 as the impact of global financial crisis hit home.