Policy reforms needed to achieve 8 pct growth - panel
* Recommends adjustment in fuel prices, higher taxes
NEW DELHI, Feb 22 - India's economy is expected to pick up in the fiscal year starting on April 1 after clocking its slowest annual growth in three years, but reforms will be needed to maintain the momentum, a government advisory panel said on Wednesday.
Gross domestic product, which grew an average 9.5 percent a year in the three years to 2007/08, is likely to expand by between 7.5 and 8 percent in the next financial year after growing 7.1 percent in the year ending on March 31, the panel said.
"We might be able to achieve a growth rate close to 8 percent on our own steam ... provided we take some of the corrective actions," C. Rangarajan, head of Prime Minister Manmohan Singh's economic advisory council, told reporters.
A return to 9 percent growth is not likely any time soon, given the uncertain outlook for the global economy, he said.
Indian policymakers have largely blamed high interest rates and euro zone debt troubles for the country's economic slowdown.
But economists say the Singh government's failure to carry out any meaningful structural reforms since it was re-elected in 2009 is also responsible for weak capital investment and a burgeoning fiscal deficit.
Fuel subsidies are a case in point, the panel said.
New Delhi's fuel subsidy bill is now expected to top 600 billion rupees ($12.17 billion) by the end of March, two-and-a-half times the original estimate of 236 billion rupees.
The panel recommended hiking diesel prices and reviewing subsidies on other fuels to ease the subsidy burden, even at the risk of stoking inflation.
"It may have some immediate impact on the headline inflation. But over the medium term, that is the appropriate thing to do," Rangarajan said.
HIGHER TAXES NEEDED
Thanks to a rising subsidy bill and weak tax receipts, New Delhi's fiscal deficit is widely expected to rise to 5.5 percent of GDP in the current fiscal year, much higher than the 4.6 percent estimated by the government last February.
The government's failure to wind up the fiscal stimulus that it doled up to revive the economy after the 2008 global financial crisis is also a burden on its finances.
The government pumped 1.86 trillion rupees ($37.72 billion)into the economy in the form of tax breaks and new spending.
As a result the federal tax-GDP ratio will likely fall to 10.4 percent for both this fiscal year and next, from its 2007/08 peak of 12 percent, the panel said in its report.
With its tax receipts growth declining, the government has been forced to rely on higher market borrowing to fund expenditure.
"We must go back as soon as possible to the pre-crisis level of tax-GDP ratio," Rangarajan said. "The process should be initiated in the forthcoming budget of 2012/13."
The panel suggested the government should consider raising tax rates on certain lower-taxed products in the March 16 budget, as well as aligning the tax rates on items such as tobacco with international standards.
It also recommended widening the tax net on the services sector which represents about 55 percent of India's GDP.
The panel's forecast for improved economic growth in 2012/13 is predicated on expectations of a turnaround in the manufacturing and mining sectors, which are suffering from high interest rates and an uncertain regulatory environment.
Manufacturing output grew an annual 1.8 percent in December, while mining production posted its fifth straight contraction during the same month. Capital goods production, a proxy for investment, has shrunk for four months in a row.
"The investment rate has been coming down since the crisis year (of 2008)," Rangarajan said. "It is imperative to bring up the investment level to a higher position."
* Recommends adjustment in fuel prices, higher taxes
NEW DELHI, Feb 22 - India's economy is expected to pick up in the fiscal year starting on April 1 after clocking its slowest annual growth in three years, but reforms will be needed to maintain the momentum, a government advisory panel said on Wednesday.
Gross domestic product, which grew an average 9.5 percent a year in the three years to 2007/08, is likely to expand by between 7.5 and 8 percent in the next financial year after growing 7.1 percent in the year ending on March 31, the panel said.
"We might be able to achieve a growth rate close to 8 percent on our own steam ... provided we take some of the corrective actions," C. Rangarajan, head of Prime Minister Manmohan Singh's economic advisory council, told reporters.
A return to 9 percent growth is not likely any time soon, given the uncertain outlook for the global economy, he said.
Indian policymakers have largely blamed high interest rates and euro zone debt troubles for the country's economic slowdown.
But economists say the Singh government's failure to carry out any meaningful structural reforms since it was re-elected in 2009 is also responsible for weak capital investment and a burgeoning fiscal deficit.
Fuel subsidies are a case in point, the panel said.
New Delhi's fuel subsidy bill is now expected to top 600 billion rupees ($12.17 billion) by the end of March, two-and-a-half times the original estimate of 236 billion rupees.
The panel recommended hiking diesel prices and reviewing subsidies on other fuels to ease the subsidy burden, even at the risk of stoking inflation.
"It may have some immediate impact on the headline inflation. But over the medium term, that is the appropriate thing to do," Rangarajan said.
HIGHER TAXES NEEDED
Thanks to a rising subsidy bill and weak tax receipts, New Delhi's fiscal deficit is widely expected to rise to 5.5 percent of GDP in the current fiscal year, much higher than the 4.6 percent estimated by the government last February.
The government's failure to wind up the fiscal stimulus that it doled up to revive the economy after the 2008 global financial crisis is also a burden on its finances.
The government pumped 1.86 trillion rupees ($37.72 billion)into the economy in the form of tax breaks and new spending.
As a result the federal tax-GDP ratio will likely fall to 10.4 percent for both this fiscal year and next, from its 2007/08 peak of 12 percent, the panel said in its report.
With its tax receipts growth declining, the government has been forced to rely on higher market borrowing to fund expenditure.
"We must go back as soon as possible to the pre-crisis level of tax-GDP ratio," Rangarajan said. "The process should be initiated in the forthcoming budget of 2012/13."
The panel suggested the government should consider raising tax rates on certain lower-taxed products in the March 16 budget, as well as aligning the tax rates on items such as tobacco with international standards.
It also recommended widening the tax net on the services sector which represents about 55 percent of India's GDP.
The panel's forecast for improved economic growth in 2012/13 is predicated on expectations of a turnaround in the manufacturing and mining sectors, which are suffering from high interest rates and an uncertain regulatory environment.
Manufacturing output grew an annual 1.8 percent in December, while mining production posted its fifth straight contraction during the same month. Capital goods production, a proxy for investment, has shrunk for four months in a row.
"The investment rate has been coming down since the crisis year (of 2008)," Rangarajan said. "It is imperative to bring up the investment level to a higher position."