A day after Finance Minister P Chidambaram prescribed some bitter pills for fiscal consolidation, Prime Minister Manmohan Singh today hinted at the need to raise prices of petroleum products and electricity.
He was speaking at business chamber Ficci's annual general meeting (AGM).
Pointing out that the government's subsidy bill was hindering its development agenda, he said in his inaugural speech: "Underpricing of energy, particularly electricity and petroleum products, has greatly affected the resources available for investments in infrastructure and social development."
He said oil subsidy alone was more than what the government spent on health and education put together. "We need to address these issues even as we ensure the poor and vulnerable are protected."
He also highlighted his government's seriousness to meet the fiscal road map for the next five years which envisages bringing down fiscal deficit to 5.3 per cent of gross domestic product (GDP) this financial year and further to three per cent by 2016-17, against 5.76 per cent in 2011-12.
"The government is serious about moving in this direction. Our action in correcting distortions in energy pricing and reducing diesel and LPG subsidies was aimed at achieving this," Singh said.
Singh said the steps recently taken by the government - 51 per cent foreign direct investment in multi-brand retail, setting up of the Cabinet Committee on Investment, etc - were just the beginning of the process to bring the economy back on the 8-9 per cent growth path.
The Union Budget for 2012-13 had estimated the Centre's fiscal deficit for the financial year at 5.1 per cent of GDP which was later revised to 5.3 per cent. The government has been struggling to meet even the revised target.
The prime minister said the government would scale up the disinvestment process to be able to meet the target.
Chief Economic Advisor Raghuram Rajan, too, emphasing the need to contain government expenditure, indicated the 2013-14 Union Budget might have provisions to cut the Centre's fiscal deficit.
He said the finance minister had already laid out the fiscal path very clearly and that was something that could restore investor confidence. "So, we move along that path. And the Budget will be the next important step along that path."
To a query on whether fiscal deficit would be reined in at 5.3 per cent of GDP this financial year, he said: "We are going to do our best to achieve the 5.3 per cent target."
Yesterday, the finance minister had warned India faced the possibility of a sovereign rating downgrade to junk if fiscal consolidation did not happen. He had prescribed some "bitter" medicine to contain the Centre's fiscal deficit.
When asked about the bitter medicine the finance minister talked about yesterday, Rajan said the government had to be careful about everything it spent on. "That is how we are going to get back on fiscal track, being careful (on expenditure)."
Even as the prime minister reminded industry of the affirmative action he had promised at the AGM of Confederation of Indian Industry, another industry chamber, five years ago, India Inc seemed to be unhappy with the land acquisition Bill cleared by the Union Cabinet on Friday.
Outgoing Ficci president, R V Kanoria, said the land acquisition Bill should not be passed in its present form and be comprehensively reviewed. Kanoria said all implications of the Bill have not been thought through.
Singh, however, defended the Bill. "The land acquisition Bill, recently approved by the Cabinet, with all the misgivings that Mr Kanoria has expressed, will soon usher in a more fair and transparent regime for land acquisition," he said.