Finance Minister P Chidambaram today indicated some difficult decisions would be taken by the government to contain expenditure and improve the fiscal situation.
Speaking at the National Development Council (NDC) meeting, Chidambaram said it was imperative to contain the fiscal deficit by augmenting resources and controlling expenditure. He said some measures might cause immediate pain, but this was necessary to ensure that fiscal deficit came down to 3 per cent of gross domestic product (GDP) in the next three years. Fiscal deficit is projected at 5.3 per cent of GDP in 2012-13.
Earlier in the day, Prime Minister Manmohan Singh had also hinted at tough decisions such as increasing fuel prices and power tariffs and reducing subsidies to achieve the target of 8 per cent growth in the 12th Five-Year Plan.
Chidambaram lauded states for containing their combined fiscal deficit to 2.1 per cent of GDP and also for generating a revenue surplus of 0.75 per cent, said a finance ministry statement.
The finance minister expressed optimism that the economy would continue to grow at a healthy rate, even as global economies face recession, as India has strong fundamentals buoyed by factors such as a high savings rate, a growing services sector, a large middle class that continues to create demand, and technical and qualified manpower.
Chidambaram said steps were also being taken to contain the current account deficit (CAD). He added there was a need to control gold imports, which contributed $64 billion to CAD.
Urging all states to adopt the direct cash transfer scheme, the finance minister said in the initial phase subsidies relating to petroleum, food and fertiliser would not be distributed through this scheme. It will be a game-changer and will transform the way in which subsidies are managed, he added.
According to Planning Commission Deputy Chairman Montek Singh Ahluwalia, there was a need to modify the 8.2 per cent average annual growth estimated during the full Planning Commission meeting held in September, in light of lower estimate of growth in 2012-13 and weak global economic prospects.
Speaking to reporters on the sidelines of the NDC meeting, Ahluwalia said that the most likely impact of lowering the growth rate to 8 per cent from 8.2 per cent in the 12th Five-Year Plan could be on the growth estimates of construction and industry sectors. He added that the final sector-wise impact of lowering the growth projections will have to be worked out. "In agriculture, nothing changes and the growth estimate during the 12th Plan is expected to be around the earlier projected 4 per cent," he said.
In its earlier estimate of 8.2 per cent growth, the Planning Commission had assumed construction growth at an annual average 8.6 per cent and industry growth at 8.1 per cent. In the 11th Plan period, construction sector is estimated to have grown at 7.3 per cent, while industry at 6.6 per cent.
On the concerns raised by states at the NDC meeting, the Ahluwalia said that apart from financial problems, fuel shortage in power plants was the biggest concern for states. In direct cash transfer in the public distribution system, states will have the choice of either going with existing system of distributing foodgrains or adopting the new method of cash, he added.