Economic Survey: Report card calls for new fiscal law, not just cost-cuts - Times of India

The Economic Survey has called for repairing state government finances and called for urgent measures to reverse the trend through better accounting and budget management, a new fiscal law and revamping taxes and spending.

The survey, a snapshot of the economy's performance, said achieving fiscal targets by cutting expenditure is unsustainable. "Addressing the key fiscal risk of food, fertilizer and petroleum subsidies is also critical for achieving better quality fiscal marksmanship," the report said.

"Apart from distorting production, subsidies do not penalize, and in fact encourage, wastage of scarce resources," it said.

The survey, prepared by the finance ministry, called for a comprehensive reform plan for subsidies with clear long term objectives. It also called for improving tax buoyancy and an early introduction of the goods and services tax (GST).

The report, which is presented to Parliament a day before the Union budget, advocated a fresh thinking on a responsible fiscal policy scenario including a new Fiscal Responsibility and Budget Management Act (FRBM). "The modified Act needs to take into account business cycles and to have penalties that are strong enough so that it cannot be ignored," the survey said.

The report card said the emphasis of policy to revive growth momentum would have to remain on fiscal consolidation and removal of structural restraints. The state of government finances have been a concern and the Narendra Modi government has been saddled with huge unpaid bills.

The bloated subsidies on food, fertiliser and fuel pose a huge challenge for finance minister Arun Jaitley.

Modi has called for tough measures to revive the economy and has said he has inherited an empty treasury. The slowdown in growth led to sluggish revenues and hurt government plans to revive growth. While the UPA met its fiscal deficit target for 2013-14, economists said it was largely on the back of a squeeze on expenditure. Global rating agencies are keeping a close eye on the new government's strategy to reverse the state of government finances.

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