New Delhi, Nov 18: The government plans to bring down the combined fiscal deficit of Centre and states by 5-6 per cent through higher tax mobilisation and lowering interest outgo, as part of the broad strategy to sustain 8-10 per cent GDP growth in the next five years. Without slashing subsidies drastically, Finance Ministry is hopeful the combined fiscal deficit should come down to 4-5 per cent in five years from the present level of over 10 per cent.

"A 5-6 per cent downward correction is required for the fiscal deficit. About three-fourth of this could be achieved through increased tax collection and one-fourth from lower interest payments," a senior Finance Ministry official said.
The Tax-GDP ratio in India was very low at about 7-8 per cent and it should go up by 3-4 per cent in the next five years, he said.
Introduction of Value-added Tax would also increase revenue collection for the states and help them address their fiscal woes. Bureau Report