Steps to trim fiscal deficit on, says Centre

“With the narrowing down of fiscal deficit (net difference between government expenditure and earnings) we are on a strong footing to push forward the much needed process of fiscal consolidation in the current fiscal,” Chief Economic Adviser Kaushik Basu told Deccan Herald. “As the latest fiscal data show we are quite sure of not exceeding the fiscal deficit target we have set for current fiscal. We have set the fiscal deficit target at 5.5 per cent of Gross Domestic Product (GDP) in the current fiscal 2010-11. We not only hope to meet this target but may do marginally better than that,” Basu said.

The process of fiscal consolidation came under heavy pressure in 2009-10 with the fiscal deficit shooting up to an alarming high of 6.7 per cent of GDP as the government stepped up public expenditure to bail out the economy, which was hit by the ripple effect of global slowdown in late 2008. The finance commission, which primarily advises on revenue sharing between Centre and states, in its latest report while stressing on the need for focusing more on the process of fiscal consolidation has laid out a road map for bringing down the fiscal deficit to 3 per cent of the GDP by 2013-14.

“Our performance so far in containing fiscal deficit gives us to be optimistic of adhering to road of fiscal consolidation,” Basu said. As the latest data show center’s fiscal deficit has narrowed down by 33.76 per cent year-on-year to Rs 1.62 lakh crore in April-October, 2010. It stood at Rs 2.45 lakh crore in the same period last year.

The fiscal deficit in the current year has come down because of better-than-expected revenue from the sale of spectrum and robust tax collections. On expenditure front too the finance ministry is optimistic about containing government spending especially on the major head of subsidy expenditure.

It is estimated that subsidy expenditure as percentage of GDP would decline from 2.1 per cent in revised estimates 2009-10 to 1.7 per cent in budget estimates 2010-11.

For instance, the government will not compensate state-owned oil marketing firms for selling petroleum products below cost prices through oil bonds. It will only give measured cash subsidy so that subsidy burden does not go up, an official said.