Presenting the interim budget for fiscal 2014-15, finance minister P Chidambaram said India will become the third largest economy behind the US and China over the next three decades, i.e. by the year 2043.
Since the fortunes of China and India will have a significant impact on the rest of the world, the Indian government must be responsible, not only to itself but to the whole world to keep the country's economy in robust health, the finance minister said today while presenting the vote on account.
Chidambaram said the UPA government has a clear vision of the goals that have been set for itself, adding that the government has set for itself ten tasks in order to achieve those goals.
The main task, he said, is fiscal consolidation. The government has set a target of containing fiscal deficit at 3 per cent of GDP, and possibly below that, by 2016-17.
However, since the economy will run a current account deficit every year for some more years, it can be financed only through foreign investment, whether FDI or FII or ECB or any other foreign inflow. Therefore, foreign investment must be encouraged, he said.
In a developing economy where the aim is high growth, Chidambaram said, a moderate level of inflation will have to be accepted. RBI must strike a balance between price stability and growth while formulating monetary policy, he added.
He said the recommendations of the Financial Sector Legislative Reforms Commission must be implemented immediately as they do not require any change in legislation. Also, a timetable must be drawn for other recommendations that require legislation.
For building infrastructure, the PPP model is crucial considering the limited finances of the government, he said, adding that new financing structures must be created for long-term funds and pooling of investments.
The government, he said, must focus on manufacturing and especially on manufacturing for export. The minister proposed that all taxes, both central and state, that go into an exported product should be waived or rebated.
He also proposed that there should be a minimum tariff protection so that there is an incentive to manufacture goods in India rather than import them into India.
Given the limited resources, and the many claims on the resources, Chidambaram wanted the government to choose the subsidies that are absolutely necessary and give them only to the absolutely deserving.
He said, attention must be given to urban planning along with infrastructure creation as the country's cities are increasingly becoming ungovernable, and perhaps unliveable.
Wealth should be tapped for resources to rebuild these cities with a new model of governance.
Skill development is another area the government must undertake alongside secondary education, university education, total sanitation and universal health care as the priority areas, he said.
Last, but not the least, he said, much will depend on the fiscal space available for states to bear the financial costs of implementing flagship programmes and the availability of resources with the central government for expenditure on defence, railways, national highways and telecommunications that are its exclusive responsibility.