The Hindu Business Line : ‘Increased fiscal deficit not a cause for concern’

New Delhi, Dec. 12 Citing Nobel laureate Paul Krugman, the Union Home Minister, Mr P. Chidambaram, said on Friday in the Lok Sabha that India should not worry too much about its fiscal deficit overshooting legislated target for 2008-09.

Mr Chidambaram was standing in for the Prime Minister, who holds the finance portfolio.

Mr Krugman had said that this was not the year for any country to worry about its fiscal deficit.

Responding to a spate of supplementaries on a question posed by BJD Member Mr B.K. Tripathy on the external and internal debt situation of the country, Mr Chidambaram said that it would not be a cause for concern if the fiscal deficit was to cross 3 per cent of GDP this fiscal.

Priority sector

Mr Chidambaram said that the country should look at stimulating the economy rather than worry about increased fiscal deficit.

He also ruled out any amendments to the Fiscal Responsibility and Budget Management (FRBM) law.

“If we breach the FRBM targets, we will report to Parliament. I don’t think the act needs amendments. It is not a wise suggestion to amend FRBM law.

“This law has been passed by Parliament. The discipline in public investments has been brought about by this law.”In his budget speech for 2008-09, Mr Chidambaram, then the Union Finance Minister, had pegged the fiscal deficit estimate for the year at 2.5 per cent of GDP.

At the economic editors’ conference in November, he had said that the country may need one more year to achieve the FRBM target of eliminating the revenue deficit and containing the fiscal deficit to below 3 per cent of GDP.

More Debt

The Centre’s public debt (internal and external) has been increasing in absolute terms on account of persistent fiscal deficit. The gross fiscal deficit is financed by borrowings, internal or external, resulting in debt build-up.

The increase in internal liabilities is also due to issue of dated securities under the Market Stabilisation Scheme since 2004-05.

In the case of external debt, commercial borrowings and NRI deposits have contributed to the increase in the long-term debt category, besides a rise in short-term debt.

With capital flows decreasing, it is expected that there may not be an increase in internal liabilities due to issuance under MSS.

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