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Govt must adhere to 3% fiscal deficit target: Economic Survey

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SurveyThe Economic Survey 2014-15 has said that India must adhere to the medium-term fiscal deficit target of 3 percent of GDP to insure against future shocks and also to move closer to the fiscal performance of its emerging market peers.

India must also reverse the trajectory of recent years and move toward the golden rule of eliminating revenue deficits and ensuring that, over the cycle, borrowing is only for capital formation, the survey said. “Expenditure control combined with recovering growth and the introduction of the GST will ensure that medium term targets are comfortably met.”

In the short run, the need for accelerated fiscal consolidation is lessened by the dramatically changed macro-circumstances and the less-than-optimal nature of pro-cyclical policy. The ability to do so will be conditioned by the recommendations of the Fourteenth Finance Commission (FFC), the survey said.

“Nevertheless, to ensure fiscal credibility and consistency with medium-term goals, the process of expenditure control to reduce the fiscal deficit should be initiated. At the same time, the quality of expenditure needs to be shifted from consumption, by reducing subsidies, towards investment.”

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