October 29, 2012 11:52:55 am
Worried over high budget deficit derailing growth,Finance Minister P Chidambaram today unveiled a five-year roadmap for fiscal consolidation to promote investments,contain inflation and take India to high growth trajectory.
The government,the Minister said,will continue efforts to restrict fiscal deficit in the current financial year to 5.3 per cent of the Gross Domestic Product (GDP) and reduce it to 3 per cent by 2016-17. The fiscal deficit was 5.8 per cent in 2011-12.
“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 said.
Economic growth slipped to nine-year low of 6.5 per cent in 2011-12 and it is expected to fall further this fiscal.
Referring to fiscal consolidation in 2012-13,Chidambaram expressed the confidence that government would be able to raise Rs 30,000 crore from disinvestment and Rs 40,000 crore from sale of spectrum.
As regards the revenue targets,he said,”every effort will also be made to realise the revenue budgeted under tax receipts. Government also expects to be able to contain and economise on expenditure,both on Plan and non-Plan side.
“While funds will be made available for essential expenditure,especially capital expenditure,every effort will be made to avoid parking or idling of funds,” he said.
The government had 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.
Chidambaram said,”5.1 per cent was very challenging. After looking at all the factors we think 5.3 per cent is do-able and we intend to work hard and achieve that.
“This plan is necessary,this plan must be implemented and government is very serious about implementing this fiscal consolidation plan.”
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 in 2012-13.
Chidambaram said the government is determined to address the twin challenges of current account deficit (CAD) and fiscal deficit.
He said the CAD is expected to come down to USD 70.3 billion or 3.7 per cent of GDP in the current fiscal,from USD 78.2 billion or 4.2 per cent in 2011-12.
“Government is confident that the CAD will be fully financed by capital inflows,and expects that a substantial part of it will be in the form of Foreign Direct Investments (FDI),foreign institutional investment (FII) and External Commercial Borrowings (ECBs),” Chidambaram said.
When asked about the introduction of the amended Direct Taxes Code (DTC) Bill,Chidambaram said,it is under review and would be presented to Parliament after taking into account the recommendations of the Standing Committee.
“A quick review of DTC Bill will be done. We are looking at the Bill that was introduced,at the standing committee’s recommendations. We are also looking at current economic situation and therefore final version of bill that will be introduced in Parliament will reflect all these. By and large we will have to abide by Standing Committee recommendations,” he said.
Chidambaram said the work is in progress on both the DTC and the Goods and Services Tax (GST).
While DTC will replace the archaic Income Tax laws,GST will subsume various levies and streamline the indirect tax regime.
On lowering government holdings in state-owned firms,he said the Disinvestment Department has already obtained Cabinet approval for stake sale in 8 PSUs — HCL,NALCO,SAIL,RINL,BHEL,OIL,MMTC and NMDC.
Chidambaram said the government would rely on Aadhaar enabled direct cash transfers of subsidies to eliminate duplication or falsification.
He said that the slowdown in the world economy,lower growth in India,higher inflation,lower tax receipts and increased expenditures led to considerable fiscal stress in the 2011-12 financial year.
The fiscal deficit,the gap between overall expenditure and revenue,rose to 5.8 per cent on GDP in 2011-12.
Chidambaram said that if immediate corrective steps were not taken then the economy could go into a cycle of low growth,high inflation and high deficit.
“I reiterated our commitment to bring the economy back on the high growth trajectory. Towards this end,some difficult but crucial decisions were taken recently,” he said.
Chidambaram,soon after assuming office in August,has ushered in a host of reform initiative. While the diesel price was hiked by over Rs 5 a litre from September 13,the foreign investment norms were liberalised for retail,pension,insurance,information and broadcasting sectors.
Chidambaram had in August,appointed a three member committee under the chairmanship of 13th Finance Commission headed Kelkar to suggest a roadmap for fiscal consolidation.
As per the roadmap given by the Committee,the Centre should aim to reduce the fiscal deficit to 4.6 per cent and 3.9 per cent by 2013-14 and 2014-15 respectively.
* Finance Minister P Chidambaram unveils roadmap for fiscal consolidation.
* Government accepts recommendations of Kelkar Committee on fiscal consolidation; fiscal deficit to be 5.3% in 2012-13: Chidambaram.
* Fiscal consolidation will help in moving to a regime of low inflation and high growth: Chidambaram.
* I am reviewing Direct Taxes Code (DTC),it will be introduced in Parliament; meeting on GST on November 8: Chidambaram.
* Government expecting current account deficit of USD 70.3 billion or 3.7 per cent of GDP in 2012-13: Chidambaram
* We are confident of raising Rs 30,000 crore from disinvestment in current fiscal: Chidambaram
* Programs for the poor to be ring-fenced
* Finance minister offers no concrete plans
India pledges fiscal deficit cut,but short on specifics
(Reuters) The Indian government pledged to nearly halve its fiscal deficit by March 2017 in a bid to avoid a credit rating downgrade and persuade the central bank to cut interest rates to help the ailing economy,but offered few concrete steps to meet the ambitious target.
The fiscal consolidation plan announced on Monday did not say how New Delhi aims to rein in a ballooning subsidy bill that has strained public finances and put the country’s investment grade credit rating in peril.
Higher spending on fuel,food and fertilizer subsidies along with sluggish tax revenues has raised fears in some quarters that the fiscal deficit for the year to end-March 2013 could be as high as 6 percent of GDP.
A burgeoning deficit is undermining the Reserve Bank of India’s (RBI) efforts to control demand-driven price pressures. The government’s use of domestic savings to finance the deficit is crowding out private investment and growth prospects.
We do not have an option,Finance Minister P. Chidambaram said at a news conference in New Delhi as he unveiled what he called a new fiscal consolidation plan.
New Delhi is aiming to keep the deficit at 5.3 percent of GDP this fiscal year,Chidambaram said on Monday in a revision to a previous target of 5.1 percent. He said they would reduce it further to 3 percent by the fiscal year 2016/17,from 5.8 percent at the end of the last fiscal year.
Under the plan,the government will focus on economising existing expenditure,reducing wastage,and increasing revenue from share sales in state-run companies,he said.
But financial markets were disappointed by the lack of specifics.
In our view,the measures announced will be insufficient to contain the fiscal deficit at 5.3 percent of GDP in FY13 due to higher subsidies and lower tax revenues,Nomura said in a statement.
I think part of my job is to tell the truth as I see it. I think 5.1 percent is challenging,5.3 percent is doable,so we intend to work hard and achieve 5.3 percent,Chidambaram said. A government panel said last month India was teetering on a fiscal precipice and called on the government to slash its subsidy bill in order to get the deficit under control.
But cutting the subsidies could be politically perilous for the populist ruling Congress party ahead of state and federal elections,and Chidambaram stressed that all programs to help India’s poor would be protected under the consolidation plan. It is a tall order,said A. Prasanna,economist at ICICI Securities in Mumbai,referring to the 3 percent deficit target. I would emphasise that there has to be some plan to cap subsidies.
Chidambaram’s comments came a day ahead of the RBI’s quarterly policy review. The central bank,which is not expected to cut rates on Tuesday,has previously called for fiscal consolidation measures from the government.
The central bank’s governor,Duvvuri Subbarao,met Chidambaram on Friday. Chidambaram’s announcement of a plan to reduce the fiscal deficit is unlikely to influence the RBI’s policy stance,analysts said.
The timing of these announcements (one day ahead of the RBI policy meeting) also suggests growing political pressure on the RBI to cut rates tomorrow,Nomura said.
Over the past six weeks,the government has increased the price of heavily subsidised diesel,opened up the retail sector to global supermarket chains,allowed foreign airlines to buy stakes in local carriers and proposed raising the bar on foreign direct investment in insurance firms.
Chidambaram,who moved into his post in August and embarked on a reform agenda almost immediately,has predicted a return to average GDP growth of about 8 percent over the next five years.
Analysts say federal finances and capital investment need to improve before the economy again hits the 9 percent growth it was clocking before the 2008 global financial crisis.
The International Monetary Fund sharply cut its economic growth forecast for India for 2012 this month to 4.9 percent from 6.1 percent previously. Rating agency Standard & Poor’s said this month the country faces a one-in-three chance of a credit rating downgrade to junk over the next two years.
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