A day ahead of the Reserve Bank of India’s monetary policy review, the finance ministry on Monday issued a revised schedule for fiscal consolidation, pegging the current year’s fiscal deficit at 5.3 per cent of gross domestic product (GDP), against the 5.1 per cent projected in the year’s Union budget.
The map says the deficit would be brought down to 4.8 per cent by 2013-14, 4.2 per cent by 2014-15, 3.6 per cent by 2015-16 and 3 per cent by 2016-17.
“I am making the statement so that everybody in India acknowledges the steps we are taking and also acknowledges the government is determined to bring about fiscal consolidation,” Chidambaram said in response to a query on whether RBI would cut rates.
RBI has, time and again, warned the Centre should pursue a fiscal correction path without delay. The central bank on Monday said a credible fiscal consolidation strategy is on the anvil but these measures needed to be backed by more.
Accepting the recommendations of the Kelkar panel, which had cautioned that the fiscal deficit could shoot up to 6.1 per cent in 2012-13 if no steps were taken, Chidambaram exuded confidence that the year’s disinvestment target of Rs 30,000 crore and the telecom spectrum auction target of Rs 40,000 crore would be met. The government has not raised even a single paisa so far from disinvestment this year.
The minister did not specify how the government would curtail subsidies. The ministry has said the Kelkar panel’s recommendations on administrative measures to improve tax collection, new models for disinvestment, disinvestment of residual stake in some companies, rationalisation of schemes and strict monitoring of expenditure have been accepted.
“As fiscal consolidation takes place and investors' confidence increases, the economy will return to the path of high investment, higher growth, lower inflation and long-term sustainability,” said Chidambaram.
On the Direct Taxes Code, the minister said a quick review was underway and, by and large, the government would abide by the recommendations of the standing committee of Parliament when the final version of the Bill was introduced.
The standing committee had suggested raising the income tax exemption limit to Rs 3 lakh from Rs 2 lakh at present, increasing the investment limit for tax savings schemes to Rs 3.2 lakh and retaining corporation tax at 30 per cent. The minister again stressed that while funds would be made available for essential expenditure, especially capital expenditure, parking or idling of funds would be avoided.
The government is facing a problem of high twin deficits, on the fiscal and current account, as well as high inflation and low growth. The fiscal deficit was 5.8 per cent in 2011-12, while economic growth slipped to a nine-year low of 6.5 per cent. Growth is expected to fall further this year. Earlier this month, Standard & Poor's had warned that India had a one-in-three chance of a bond downgrade to junk status.