JOIN USGovt roadmap estimates fiscal deficit at 5.3 per cent
A day before the Reserve Bank of India reviews credit policy, Finance Minister P Chidambaram on Monday unveiled a five-year roadmap for fiscal consolidation to fuel growth by promoting investment and curbing inflation.
Laying the roadmap to put the government's fiscal house in order, the Finance Minister emphasized the need to control expenses and generate more revenue as the government targeted budget deficits of 5.3 per cent of the Gross Domestic Product (GDP) this fiscal and 4.8 per cent in the next.
The minister referred to the plan to reduce the government's budget deficit to 4.2 per cent of GDP in 2014-15, 3.6 per cent in 2015-16 and 3 per cent in fiscal 2016-17.
"As fiscal consolidation takes place and investors' confidence increases, it is expected that the economy will return to the path of high investment, higher growth, lower inflation and long-term sustainability", he told reporters. Chidambaram's announcement came a day ahead of RBI's quarterly credit policy review. The central bank, which is feared to be unlikely to cut rates on Tuesday, had earlier called for fiscal consolidation measures from the government.
RBI Governor D Subbarao on Friday met Chidambaram. It is yet to be seen whether the minister’s announcement of a plan to reduce the fiscal deficit will influence RBI's policy stance. Though officials in the government and industries have been calling for the RBI to support the reform steps by cutting its policy lending rate, the central bank did not heed it, citing high inflation.
India’s economic growth slipped to a nine-year low of 6.5 per cent in 2011-12 and is expected to fall further this fiscal.
Referring to fiscal consolidation in 2012-13, Chidambaram expressed confidence that the government will be able to raise Rs 30,000 crore from disinvestment proceeds and Rs 40,000 crore from the sale of telecom spectrum.
The Disinvestment Department has already obtained Cabinet approval for stake sale in eight PSUs -- HCL, NALCO, SAIL, RINL, BHEL, OIL, MMTC and NMDC. On revenue targets, Chidambaram said, "All efforts will be made to realise the revenue budgeted under tax receipts. Government also expects to be able to contain and economise on expenditure, both on the Plan and non-Plan sides.
He said that besides cutting down on unwanted expenditure, the government would rely on Aadhaar-enabled direct cash transfers of subsidies to eliminate duplication or falsification. The government has budgeted the fiscal deficit for 2012-13 at 5.1 per cent. However, as per the consolidation roadmap, it is expected to be 5.3 per cent of GDP.
The roadmap follows the recommendation of the Vijay Kelkar-headed Committee which had suggested that the government should undertake reform initiatives, go ahead with disinvestments and reduce subsidies, without which fiscal deficit could shoot up to 6.1 per cent of GDP in 2012-13.