With the fiscal deficit likely to shoot up during 2011-12, leading economists urged Finance Minister Pranab Mukherjee to expedite tax reforms to increase revenue and take steps to bring economy back on high growth path.
"Budget has to make a strong policy statement. Show the world that government is serious on fiscal consolidation and fiscal deficit will be reduced," Rajiv Kumar, Secretary General of FICCI said after the pre-Budget meeting of the Finance Minister with economists.
In the last Budget, the government had projected the fiscal deficit -- gap between expenditure and receipts -- to fall to 4.6 per cent of the GDP in 2011-12 as against 4.7 per cent in the earlier fiscal.
The likely slippage would be due to lower tax mop-up, ballooning subsidy bill and lower divestment proceeds.
Prime Minister's Economic Advisory panel member M Govinda Rao said the deficit in the current financial could overshoot the target by 1 per cent to around 5.6 per cent of the GDP.
"If fiscal deficit slippage is one per cent, next year if you want to bring it down to 4.1 per cent, there is going to be a huge problem," he said.
Economists were of the view that the government should speed up the tax reform process.
The government is slated to implement ambitious reforms on both direct and indirect taxes fronts. Bills on Direct Taxes Code (DTC) and Goods and Services Tax (GST) are currently with Parliamentary Standing Committee.
Economist also asked Mukherjee to speed up policy reform process and implement its decision to allow foreign investors in the multi-brand retail sector.
Concerned over the slowing economic activities in the country, they also urged the government to take steps to encourage investments.
Global economic slowdown and high interest rates have impacted the economic climate in the country leading to lower GDP growth in the first half of the fiscal.
The Reserve Bank has said it will watch the steps being taken by the government to curtail fiscal deficit before taking a decision on rate cut.
RBI Governor D Subbarao recently said efforts to reduce fiscal deficit should also be through enhanced tax collections besides expenditure compression.
