The Medium Term Fiscal Policy Statement

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The Medium-term Fiscal Policy Statement, sets a three year target for specific fiscal indicators along with some inherent assumptions. It is issued by the Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act). The Medium-term Fiscal Policy Statement maintains a balance between revenue receipts and revenue expenditure and the use of capital receipts including market borrowings for generation of productive assets.

From the Medium-term Fiscal Policy Statement of the government it can be said that the economy appears to have entered a phase of high growth. The key objectives in the Central Government's Medium Term Fiscal Policy Statement are like the need to accelerate and sustain the current growth momentum and generate resources for investment, rapid development of physical and social infrastructure, to encourage State governments to stay the course of fiscal consolidation, and to achieve macroeconomic stability.

From the Medium-term Fiscal Policy Statement it is implied that in the year 2006-07 there has been an annual reduction of 0.3 percentage points in fiscal deficit and 0.5 percentage points in revenue deficit which earmarks the revenue growth of this period. Moreover, the Central Government's gross tax-GDP ratio, is estimated to go up to 11.8 per cent in BE 2007-08 and the tax revenue to grow over 17 per cent. On the other hand the Medium-term Fiscal Policy Statement also indicates that the tax-GDP ratio is set to increase to 11.8 per cent in BE 2007-08. The non-tax revenue (NTR) is set to increase to ` 82,550 crore in BE 2007-08 exhibiting a growth of 8.2 per cent. Receipts from dividends and profits at ` 33,925 crore in BE 2007-08, constitute the largest component of non-tax revenue. The Medium-term Fiscal Policy Statement as passed by the central government shows that better performance of Central Public Sector Undertakings along with the transfers from financial institutions, and dividends from CPSUs in power, telecommunications and petroleum sectors are expected to give higher returns.