Buoyed by improved tax collections in recent years, RBI Deputy Governor Rakesh Mohan on Tuesday prescribed widening the tax base, curtailing exemptions and larger deficit reductions to maintain the growth momentum.

"Larger deficit reductions will be required in next two years to meet FRBM targets, which is critical for financial, macro-economic, external and budgetary sustainability," he said at the Indian Securities Infrastructure and Operations Forum 2006 here.

"It is essential to eliminate revenue deficit and generate sufficient revenue surplus, which may be utilised for asset creation without creating liabilities," he said, warning any deviation from FRBM targets would have domestic and global repercussions in terms of credibility.

Mohan said the scope for deepening fiscal empowerment lied in improving tax revenue, and added that the reversal of the declining trend in gross tax-GDP ratio was welcome.

The increasing trend in gross tax-GDP ratio of the Centre "needs to be maintained through further widening of the tax base and curtailment in tax exemptions. Large deficit reductions in 2007-08 and 2008-09 will be required to meet the FRBM targets," he said.

Mohan said states should augment non-tax revenues through appropriate user charges and restructuring of public sector undertakings.