A. FISCAL POLICY OVERVIEW
The growth trends for the last four years indicate a continuous upswing in the economy. Increasing productivity, growth of service sector and buoyancy in tax receipts associated with the growth and to some extent, improvement in tax compliance and enforcement as a result of a more rational, liberal and efficient tax system, have contributed toward achieving quantitative goals set under the FRBM Act. Reduction of fiscal deficit has been achieved from 4.5 per cent of GDP in 2003-04 to 3.1 per cent of GDP in RE 2007-08.
During the same period, revenue deficit has declined from 3.6 per cent of GDP to 1.4 per cent. The advance estimatefor growth of GDP at factor cost at constant (1999-2000) prices in 2007-08 is pegged at 8.7 per cent which is the average growth of the last four years, albeit lower by 0.9 percentage points as compared to 2006-07 (Quick Estimates 9.6 per cent ).
The slowdown is triggered by lower than expected growth in manufacturing sector, although services sector continued to record double digit growth in first half of 2007-08. Improvement
in deficit indicators has been achieved through growth in tax receipts, which exceeded growth of revenue expenditure, notwithstanding increase in non-plan revenue expenditure fuelled largely by a high subsidy bill and interest payments.
in deficit indicators has been achieved through growth in tax receipts, which exceeded growth of revenue expenditure, notwithstanding increase in non-plan revenue expenditure fuelled largely by a high subsidy bill and interest payments.
The process of fiscal consolidation would continue to be sustained through improvement in tax-GDP ratio, moderate growth in non tax revenue, reprioritization and improving the quality of expenditure including promotion of capital expenditure to boost infrastructure development while ensuring adequate resources for social sectors like health and education.
