Survey for more fiscal space to boost investment, growth

The government must create additional fiscal space and use the resources to boost public investment for promoting growth on sustained basis, says the Economic Survey.
"The increase in fiscal space, including that gained from subsidy reductions and higher disinvestment proceeds should be devoted to public investment," Finance Minister Arun Jaitley said in the Survey, tabled in Parliament today.
The nation's public finances need to be set back on the path toward fiscal deficit of 3 per cent of GDP, as planned in FRBM (Amendment) Act 2012, stated the pre-Budget document.
"To do this, concrete actions will be needed in this budget to control expenditure via subsidy reductions, improve its quality in altering the mix between public consumption and investment in favour of the latter, and move India toward the golden rule of borrowing only for public investment," it said.

Public investment, especially in the railways, will have to play an important role at least in the interim, to revive growth and to deepen physical connectivity, it added.
The Survey prescribes what it calls, a golden rule of fiscal policy saying that governments are expected to borrow over the cycle only to finance investment and not to fund current expenditures.

"India must meet its medium-term fiscal deficit target of 3 per cent of GDP. This will provide the fiscal space to insure against future shocks," it said.
"The space is necessary to insure against future shocks. The recommended strategy would also take India closer in fiscal performance, to that of its emerging market peers," it added.

The fiscal action cannot wait. It should continue in the upcoming year as well, it said.
The Survey noted that macro-economic circumstances have improved dramatically in India.
Macro-economic pressures have abated and as per the latest estimates for the GDP (2014-15), the growth has exceeded that in most countries including China, it said.
"Provided that fiscal discipline is maintained, India's debt dynamics will consequently remain exceptionally favourable going forward," it added.
The Survey said there is a need for accelerated fiscal consolidation in view of reduced macroeconomic pressures. It outlined the two pillars of this medium-term strategy -- reduction of deficits and expenditure control and switching.

It has suggested reduction of fiscal deficit over the medium term to the established target of 3 per cent of GDP and moving towards the golden rule of eliminating the revenue deficit.