Terming revenue deficit as the main cause of 'fiscal imbalance', the Economic Survey said government needs to prune untargeted subsidies and control its wage bill to achieve 8 per cent growth.
"Fiscal consolidation continues to remain a major challenge in the process of on-going reforms. Over the years, the revenue deficit has emerged as the main source of fiscal imbalances with serious implications for public investment and growth of the economy," the pre-budget survey tabled in Parliament said.
Decline in tax-GDP ratio from 10.1 per cent in 1990-91 to 8.1 per cent in 2001-02 is a matter of concern, it said.
Most of the services remain outside the tax net while customs duties have been lowered, the survey said.
Referring to Kelkar report, the survey said "follow up on the recommendations of these task forces is expected to result in improved tax collections in medium term."
Introduction of Value-Added Tax from April has further strengthened the hopes of fiscal consolidation, it said.
Although government's spendings at 16.7 per cent of GDP was not higher by international comparison, it said "it is not the level of expenditure that is a matter of concern but its composition."
"Wages, salaries, interest payments and subsidies account for a predominant share of government expenditure. It needs to be prioritised by pruning untargeted subsidies and exercising utmost economy in wages and salaries," it said.