New Delhi, Oct. 29: Finance minister P. Chidambaram today pledged to nearly halve India’s fiscal deficit by March 2017. Analysts felt the move was meant to persuade the RBI to cut interest rates to help a slowing economy ahead of a monetary policy review on Tuesday.
From 5.8 per cent of GDP (actual deficit) in the last fiscal, the government wants to prune deficit down to 3 per cent in 2016-17.
For the current fiscal, Chidambaram said, the government will try to keep the deficit at 5.3 per cent of GDP — higher than the budget target of 5.1 per cent.
Higher spending on fuel, food and fertiliser subsidies along with sluggish tax revenues have raised fears that the fiscal deficit for the year can be as high as 6 per cent 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.
Unveiling “a new fiscal consolidation plan”, Chidambaram said the government would focus on economising existing expenditure, reducing wastage, and increasing revenue from share sales in state-run companies.
“I think part of my job is to tell the truth as I see it. I think 5.1 per cent is challenging, 5.3 per cent is doable, so we intend to work hard and achieve 5.3 per cent (this fiscal),” said Chidambaram.
A government panel said last month India was teetering on a “fiscal precipice” and called on the government to slash its subsidy bill to get the deficit under control.
But cutting subsidies could be politically perilous for the ruling Congress party ahead of the general elections in 2014, and Chidambaram stressed that all programmes to help India’s poor would be protected under the consolidation plan.
He pledged to realise Rs 30,000 crore from divestment in state-run firms and Rs 40,000 crore from the sale of telecom spectrum in this fiscal.
However, financial markets were disappointed by the lack of specifics beyond what is already known.
“In our view, the measures announced will be insufficient to contain the fiscal deficit at 5.3 per cent of GDP in 2012-13 because of higher subsidies and lower tax revenues,” Nomura said in a statement.