Existing middle class subsidies and food, petroleum and fertiliser subsidies as % of GDP
The cost of
India will approach, within four years, the peak of its demographic dividend as its working age population plateaus. This means the positive impact of demographic dividend on the overall economic growth will slow down. However, India may not see the sharp growth decelerations experienced by the East Asian countries. As the fiscal challenges mount for the states because of the Pay Commission recommendations and mounting payments from the UDAY bonds, there is a need to review how fiscal performance can be kept on track. Greater reliance will need to be placed on incentivising good fiscal performance, not least because states are gradually repaying their obligations to the Centre, removing its ability to impose a hard budget constraint on them. India’s decision to sharply raise taxes on petrol and diesel when oil prices were tumbling has placed the country among the world’s top league in imposing a carbon tax to combat climate change, the Economic Survey said. It said India increased petrol taxes 150% when crude oil price crashed. “In contrast, the governments of most ad-vanced countries have simply passed on the benefits to consumers, setting back the cause of curbing climate change. As a result, India now outperforms all the countries except those in Europe in terms of tax on petroleum and diesel,” it said. The change in tax exceeds what is recommended in Stern Review, a report on global warming by economist Nicholas Stern.