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Economic Survey 2014-15

Table 1.1: Crop Yield Comparison: India versus the World


India Highest Yield (State)

World Highest Yield


Punjab - 3952

China - 6661


Punjab - 5017

UK - 7360


Tamil Nadu - 5372

USA - 8858


Andhra Pradesh - 1439

Ethiopia - 1663


Punjab - 750

Australia - 1920

Rapeseed/Mustard Seed

Gujarat - 1723

UK - 3588

Note: Figures are in yield/kg/hectare and pertain to 2012.

The Medium-Term Fiscal Framework

Notwithstanding the challenging nature of the
2014-15 budget, elaborated in the Mid-Year
Economic Analysis 2014-15, the Government will
adhere to the fiscal target of 4.1 per cent of GDP.
Despite weakness in revenue collection and
delayed disinvestment, new excises on diesel and
petrol (revenue yield of about ` 20,000 crores),
reduced subsidies, and expenditure compression
will ensure the commitment to discipline.
India can reconcile the requirements of fiscal
consolidation and the imperative of boosting public
investment to revive growth and crowd-in private
investment provided the right lessons are learnt.
How so?
Since this is the first full budget of the new
government, and especially in light of the farreaching recommendations of the Fourteenth
Finance Commission, the time is ripe for reviewing
the medium-term framework and setting targets
for the upcoming year against that background and
taking account of the lessons of recent history
(Figure 1.13).
Three phases marked recent fiscal history. In the
first (2002-08), rapid growth improved all fiscal
aggregates, flows and stocks. But failure to control
expenditure, especially revenue expenditure,
towards the end of that phase, combined with
excessive counter-cyclical policies in the second
phase (2009-12) led to a loss of fiscal control that
contributed to the near-crisis of 2013. A casualty
has been low and stagnating capital expenditure.
In the third phase (2013-today), a modicum of

fiscal stability has been restored. This history

suggests the following strategy going forward.
First, in the medium term, India must meet its
medium-term target of 3 percent of GDP. This
will provide the fiscal space to insure against future
shocks and also to move closer to the fiscal
performance of its emerging market peers. It must
also reverse the trajectory of recent years and
move toward the golden rule of eliminating
revenue deficits and ensuring that, over the cycle,
borrowing is only for capital formation.
Second, the way to achieve these targets will be
expenditure control and expenditure switching from
consumption to investment. And the secular decline
in capital expenditure in the last decade has
undermined Indias long run growth potential. From
2016-17, as growth gathers steam and as the GST
is implemented, the consequential tax buoyancy
when combined with expenditure control will ensure
that medium term targets can be comfortably met.
This buoyancy is assured by history because over
the course of the growth surge in the last decade,
the overall tax-GDP ratio increased by about 2.7
percentage points, from 9.2 percent in 2003-04
to 11.9 per cent in 2007-08 even without radical
tax reform.
Third, the medium-term commitment to discipline
cannot result in an Augustinian deferment of actions.
In the upcoming year, too, fiscal consolidation must
continue. However, the need for accelerated fiscal
consolidation has lessened because macroeconomic pressures have significantly abated with
the dramatic decline in inflation and turnaround in
the current account deficit. In these circumstances,