Table 1.1: Crop Yield Comparison: India versus the World
Crop
India Highest Yield (State)
World Highest Yield
Paddy
Punjab - 3952
China - 6661
Wheat
Punjab - 5017
UK - 7360
Maize
Tamil Nadu - 5372
USA - 8858
Chickpeas
Andhra Pradesh - 1439
Ethiopia - 1663
Cotton
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,