India's finance ministry delivered the annual economic survey - prepared by senior economic advisor Ila Patnaik - on the state of Asia's third-largest economy a day before Modi's new government presents its first budget.
Following are highlights of the report:
* India needs sharp fiscal correction
* Fiscal situation of the central government is worse than it appears
* Need for subsidy reforms for fiscal consolidation
* Recommends raising tax-to-GDP ratio for fiscal consolidation
* Shortfall in revenues can be contained through better mobilisation and reforms
* GDP growth seen at 5.4-5.9 percent in 2014/15
* Economic growth of 7-8 percent not seen before 2016/17
* Downward risk to economic growth due to poor monsoon, external factors
* Government needs to move towards low and stable inflation through fiscal consolidation
* Wholesale Price Index (WPI) inflation expected to moderate by end-2014
* Consumer Price Index (CPI) inflation showing signs of moderation
* Needs to create a competitive national market for food
CURRENT ACCOUNT DEFICIT
* 2014/15 current account deficit may be contained to around $45 billion or to 2.1 percent of GDP
* External debt remains within manageable limits
BALANCE OF PAYMENTS
* Improvement in balance of payments position during late 2013-14 was swift thanks to import restrictions and economic slowdown
* Need to adjust to advanced economies' eventual exit from accommodative monetary policy stance
* Rationalization of subsidies such as fertilizer and food essential
* Need to shift subsidy programme from price subsidies to income support
* Government needs to move towards simple tax regime, fewer tax exemptions and single rate of goods and services tax (GST)
* GST to play vital role in indirect tax reform
* Direct Taxes Code (DTC) required to replace existing income tax laws; will reduce compliance costs and boost tax collection
* Intervention in forex market by Reserve Bank of India is behind accumulation of reserves "generally"
* "India needs sharp fiscal correction ... Improvements on both tax and expenditure are needed to obtain high quality fiscal adjustment."
* "It is better to achieve fiscal consolidation partly through a higher tax-GDP ratio than merely through reduction in the expenditure to GDP ratio, in view of the large unmet development needs."
* "Restoring economic freedom of farmers and allowing them to be part of a competitive national market is essential for controlling food inflation."