Government plans to bring down the combined fiscal deficit of the 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 that 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.

"We were ready for VAT this year but many states could not come up with the legislations. VAT, which would ensure a seamless transaction, would increase compliance and increase the tax-GDP ratio," the official said, adding the government was hopeful of introducing VAT in 12 months.

Moreover, the Fiscal Responsibility and Budget Management Act would enable the Centre to rein in its deficit. States are also coming up with similar legislations to control their deficits, he said.

While identifying fiscal deficit as the "pressure point", which may come in the way of attaining higher growth, the finance ministry has accorded top priority to infrastructure development, modernisation of agriculture, higher investment in education and bringing down tariff to single digit from the present average rate of 18 per cent.

With these, the ministry hopes the country would be able to sustain high economic growth, reduce poverty and increase employment.

"We are at the threshold of the golden age of growth. GDP growth, which is slated to be over 7.0 per cent this fiscal, would be mind-boggling and go up to 8-10 per cent in the medium term," the finance ministry official said.

While attributing the excellent monsoon as the "tipping point" for the projected 7.0 per cent growth this fiscal, the official pointed out that reforms of the last few years have started to bear fruits and "solid" changes are taking place in the economy.

Low interest regime was having a positive impact on the bottomline of corporates and even the maligned PSUs were showing impressive results.

Even investor costs have gone down by 50 per cent, which is reflective of underlying policies and efficiency.

The official pointed to the number of trades in India's premier bourse National Stock Exchange and said it was higher than that of New York Stock Exchange.