Wary Finance Minister reduces Target Fiscal Deficit 2017 to 3 percent

Indian government has outlined a five-year fiscal consolidation plan that aims to nearly halve the deficit by 2017 and cut it to 5.3 percent of the gross domestic product in the current financial year.

Addressing a press conference , Finance Minister P. Chidambaram said the government is targeting to reduce its fiscal deficit over the next five years.

Chidambaram said he was aiming to keep the fiscal deficit at 5.3 percent of the GDP in the financial year ending March 31, 2013.

As per the plan outlined by the finance minister, the government’s fiscal deficit would come down to 4.8 percent in 2013-14, 4.2 percent in 2014-15, 3.6 percent in 2015-16 and three percent in 2016-17.

However, the finance minister did not specify the measures that would help reduce fiscal deficit consistently.

The fiscal deficit had risen to 5.8 percent of GDP at the end of the financial year 2011-12.

“In 2011-12, the slowdown in the world economy, lower growth in India, higher inflation, lower tax receipts and increased expenditure, including subsidies, led to considerable fiscal stress,” Chidambaram said.

“At the end of the year, the fiscal deficit was at 5.8 per cent of GDP. The government recognised that, if immediate corrective steps were not taken, the economy may go into a cycle of low growth, high inflation and high deficit,” he said.

Chidambaram’s plan for a reduction in fiscal deficit comes a day after a major cabinet reshuffle meant to boost the government’s performance, and a day before the central bank’s half-year quarterly policy review.

“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,” Chidambaram said.

The GDP (gross domestic product) growth last fiscal declined to a nine-year low at 6.5 percent, as double digit-inflation added to the woes of a slowing economy.

Chidambaram said the government has accepted the Kelkar Committee recommendations that calls for more discipline in government spending.

The committee has recommended a number of reform measures in taxation, disinvestment and expenditure. On the taxation side, the committee has strongly advocated a transition to the Goods and Services Tax (GST) and a quick review of the Direct Taxes Code (DTC) before its introduction and passing in Parliament.

The committee has suggested rationalisation of schemes and strict control and monitoring of expenditure.

“These recommendations are wholesome and have been accepted by the government,” Chidambaram said.

The process to contain the deficit will include the usage of unique identity number – Aadhaar – to distribute subsidies to the below poverty line population, thereby plugging leakages.

Chidambaram also hoped that the Reserve Bank of India takes cognisance of efforts meant to contain deficit and cuts key lending rates to spur growth.

The finance minister added that he was reviewing the Direct Taxes Code (DTC), which is expected to be brought before parliament.

He also expressed confidence that the government will be able to meet its current disinvestment targets and raise about Rs.30,000 crore.