Roll out GST, reduce subsidies, World Bank advises India

Ahead of the Modi-government's first budget, the World Bank today suggested that India should roll out GST, reduce subsidies and broaden tax base to promote growth, projecting it to be lower at 5.5 per cent for 2014-15, from the earlier forecast of 5.7 per cent.

"Implementing the Goods and Services Tax (regime), targeting subsidies better and broadening the tax base will help create the fiscal space for supporting accelerated growth and poverty reduction," said Onno Ruhl, World Bank's Country Director-India.

He was speaking at a function here to release the World Bank's report on Global Economic Prospects (GEP) 2014. Lead author of the report Andrew Burns too was present at the launch of the report in India.

The report, which was released globally earlier, has scaled down economic growth projection for the current financial year to 5.5 per cent from 5.7 per cent estimated in April.

"The growth in India is projected at 5.5 per cent in FY 2014-15, accelerating to 6.3 per cent in 2015-16 and 6.6 per cent in 2016-17," said GEP 2014.

Ruhl said: "With a rising global demand, we expect that a rebound in domestic investments and a pick-up in manufacturing activities will help India move from two years of sub-5 per cent growth to over 6 per cent in the next year."

However, he added, fiscal reforms such as simplifying the tax structure and broadening tax base would be essential for creating space for pro-poor expenditure and accelerating growth in years ahead.

"India's general government deficit, despite falling, is still more than 2 per cent points of GDP higher than in 2007, indicating that depleted fiscal buffers have yet fully restored," the report said.

Finance Minister Arun Jaitley is expected to present the first budget of the Narendra Modi government for 2014-15 next month. The major challenge before the government will be to boost growth while keeping the fiscal deficit under check.

India's economic growth slipped to decade's low of 4.5 per cent in 2012-13. It, however, picked up to 4.7 per cent in 2013-14.

Speaking about the global economy, Burns said it is expected to pick up during the year and may clock 2.8 in 2014.

"2014 Global forecast has been downgraded mainly reflecting one-off factors. Growth in South Asia has been disappointing and although vulnerabilities are declining, they remain," he said.

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