0 - 25. 0 per cent in 2007 - 08 from the average of 29. 8 per cent over 2004 - 07. the fiscal position of the government, both central and states, is undergoing consolidation in terms of targeted reduction in fiscal deficit indicators. the improvement in the fiscal position of several states is particularly impressive, which augurs well for the sustained growth of the economy and lower inflation. the union budget for 2007 - 08 has placed the fiscal deficit at 3. 3 per cent of gdp for the year 200708, as against 3. 7 per cent in the previous year, in keeping with the spirit of the frbm act, 2003. way forward – challenges and strengths there are, undoubtedly, many challenges for the indian economy, but it is useful to focus on more urgent of these. first, the poor state of the physical infrastructure, both in terms of quantity and quality is considered by many to be the most critical hindrance for india ’ s progress. the most important issues here are regulatory framework and overall investment climate, which are being addressed by the government. second, the most complex and challenging issue relates to development of agriculture. while over 60 per cent of the workforce is dependent on agriculture, the sector accounts for barely 20 per cent of the gdp. further, the gdp growth generated from agriculture is only marginally above the rate of growth of the population, which is not adequate to ensure rapid poverty reduction. the results of recent surveys on poverty in india, however, provide grounds for some optimism in regard to accelerated reduction in absolute poverty since the reform period. third, delivery of essential public services such as education and health to large parts of our population is a major institutional challenge. it is strongly felt that education will empower the poor to participate in the growth process and the large gaps in availability of health care, in terms of minimum access to the poor, need to be filled. there are reasons to believe that these challenges will be met, with some assurance of success, on account of many inherent strengths in the indian society. i will narrate a few of these, relevant to this gathering. first, india is a country of great diversities but with incredibly harmonious co - existence of various religions, languages and a unified culture. the familiarity with multiple languages in india prepares the people to adapt better to multi - lingual environment, making it easier for them to fit into international systems very smoothly. also, a vast and growing pool of science and technology graduates and the millions

. a lot of works are still waiting ahead, though after many years ’ efforts great progress has been achieved in raising accounting standards and amending accounting rules since the asian financial turmoil. in the end of 1980 ’ s and early 1990 ’ s, serious distortions in enterprises ’ costs and profits propelled the launching of financial accounting reform in 1993 and adoption of new accounting standards and general financial rules. comparing the profit margin of chinese enterprises with their international counterparts, we would notice that, profit margin of chinese enterprises was much higher than the average 5 percent of the top 500 enterprises in the world. you can check the detailed data of chinese enterprises at that time for yourself. such comparison doesn ’ t mean higher profitability of chinese enterprises, as a large amount of costs was not reflected in cost, but in profit. for instance, bonus, employees ’ pensions, health, r & d and advertisement expenditures should have been cost items, but they were covered by profits. if such artificially high profits of enterprises were paid out as dividends, enterprises could not survive and develop. therefore, resolving distortions in cost and profit should be the first task in a series of supporting reforms. this involves upgrading accounting standards. in recent years, continued progress has been made in this regard, for instance, adoption of many practices. further international comparison may help us detect the remaining problems. financial treatments of complicated operations are also involved in the fundamental issue of cost and profit classification, such as risk provisioning, loss write - off and accounting rules on derivatives. without a clear classification, there will be serious disputes and complaints from enterprises when distorted profits are used as a basis to pay dividends. some entrepreneurs think it is a difficult problem. we can look at it from the perspective of distorted relationship between profit and cost. second, there are deficiencies in the tax system. our tax system should be rational and with few distortions. yet, this is not easily achievable for countries in transition and emerging markets and usually takes a long time. the first is tax category. improper tax categories affect the amount of profits before anything else, thus causing problems. the second is tax base. right now, reform of tax base is underway in china. the value - added tax ( vat ) will be shifted from production - based to consumption - based. one of the issues involved is how to apportion equipment investment and whether such input should be taken as costs. some large state - owned enterprises also face problems in taxa