New Delhi: Finance Minister Pranab Mukherjee Wednesday said fundamentals of the Indian economy are strong despite concerns of inflation and growth, and the overall environment will improve significantly if Parliament functions and approves important legislations.
"The economy is at a difficult situation but ...the basic fundamentals of the Indian economy are still strong," he said while replying to the discussion on the second batch of Supplementary Demands for Grants (General) 2011-12.
Parliament, which witnessed turmoil for the past several days over FDI in multi-brand retail, functioned smoothly Wednesday and Lok Sabha approved Supplementary Demands with a voice vote that seek to raise government expenditure by an additional Rs 56,800 crore during 2011-12.
According to Mukherjee, "things can improve if the institutions are strengthened, if Parliament functions, if the house debates, discusses and decides (bills)...you will see the atmosphere is changed ... atmosphere electrified".
Referring to strong fundamentals, Mukherjee said the savings rate and the investment rate have continued to remain strong at around 33-35 percent despite slowdown, though there are concerns regarding inflation and fiscal deficit.
India has been recording good growth compared to many other countries, though it has come down from the high level of 9 percent.
"Except for one country in the second quarter of the current fiscal, that is Turkey, no other country of comparable size.. have higher growth," Mukherjee added.
India has recorded a growth rate of 6.9 percent in the second quarter. It may slip to 7.5 percent in the current fiscal from 8.5 percent in 2010-11.
As regards price rise, he said that food inflation has come down from 22 percent in February 2010 to 8 percent in November 2011 but there is a need to bring it down to 5-6 percent.
"I accept that 8 percent inflation is still high but you cannot say that nothing has been done", Mukherjee said, adding that the retail prices of many essential commodities including rice and wheat have remained stable during the last two years even as the government has increased the minimum support price of those grains.
"...30 percent of the grains is purchased by government agencies...can we expect price of one kg of rice to remain same as it was 6 years ago," he asked.
The minister further said that subsidy outgo has increased during the current fiscal.
While the burden of fertiliser subsidy has increased to Rs 90,000 crore from Rs 40,000 crore estimated earlier, the under-recoveries of oil marketing companies are projected to go up to Rs 1.32 lakh crore in 2011-12.
As regards levies on petroleum goods, he said, taxes account for almost 40 percent of the retail price of petrol.
Though one-third of what the centre collects as tax on petrol goes to the states, all the blame comes to the central government, Mukherjee said, adding that the centre and states will have to collectively find a solution to the problem of high taxation on petroleum goods.
Rejecting the opposition's argument that fiscal deficit is increasing due to decline in direct and indirect tax realisation, Mukherjee said, "it is not true. Direct tax (mop up) increase has been 22 percent. Indirect tax (growth) is also 22 percent plus."
However, he added, "net direct tax (collection) has been less...due to higher refunds at Rs 68,000 crore so far this fiscal compared to Rs 27,000 crore in 2010-11."
Although the higher upfront refunds have created a problem of a cash management, the situation has improved from November onwards, he said.
The devolution of taxes has helped the states and all state governments, except for three, have cash reserves of between Rs 90,000 crore and Rs 1 lakh crore, Mukherjee said, adding that it was the centre which was having some cash problems.