Better fiscal health of states led to growth

The improvement in the fiscal health of particularly the states and the Centre led the high growth trajectory of the period FY'04 to FY'08, according to the pre-Budget Economic Survey, presented in Parliament on Thursday.

"The growth dividend that the economy reaped in the period 2003-04 to 2007-08 was in large measure due to the improvement in the fiscal health of the consolidated General Government (Centre and states combined)," the Economic Survey for fiscal 2008-09 said.

As a proportion of GDP, receipts of the consolidated general government rose from 15 per cent in 2003-04 to 18.5 per cent in 2007-08, the survey said, adding that it was budgeted at 19.1 per cent in 2008-09.

With the non-tax receipts to GDP ratio remaining almost static, higher revenue receipts, and total disbursement remaining more or less unchanged in FY'08, the combined revenue and fiscal deficits came down, it stated.

However, in comparison, the record of fiscal consolidation by states collectively has been impressive with a revenue surplus in 2006-07 and a level of fiscal deficit of 2.5 per cent of GDP in 2005-06, the survey said.

"On the strength of relatively better performance by states and also the record of the Centre, combined gross fiscal deficit of the centre and states fell from a level of 8.4 per cent of GDP in 2003-04 to a level of 5.2 per cent of GDP in 2007-08," it said.

The strong performance by states was expected to continue, as evidenced by the budget estimate for states in 2008-09, the Survey added.

"The states together have maintained the aggregate fiscal deficit within the overall borrowing ceiling fixed by the Centre in the years from 2005-06 to 2008-09. Some part of the improved fiscal position owes to the state level reforms, particularly the introduction of the state-level VAT," it said.