Economy

Pranab says ‘time to further tighten the belt' through fiscal consolidation

Our Bureau Mumbai | Updated on March 27, 2011

On guard: Mr Pranab Mukherjee, Finance Minister, Mr Rajkumar Dhoot, MP and Senior Vice-President, Assocham and Mr O.P. Bhatt, Chairman, State Bank of India, at an interactive session in Mumbai on Sunday. — Paul Noronha   -  Business Line

To fortify the country against the possible spill-over of the Euro zone crisis, the Finance Minister, Mr Pranab Mukherjee, has said it is time to now “further tighten the belt” through fiscal consolidation.

“I hope that the crisis in a small part of the Euro zone, where high sovereign debt is affecting the economy, will not further expand to the greater part and be confined to those four countries (Portugal, Ireland, Greece and Spain). If it happens, then, there will be another crisis and another downward chain (ripple impact), when the recovery is still very fragile,” said Mr Mukherjee while speaking at an Assocham event on Sunday.

Managing fiscal deficit

He added, “I would not like to have a repetition of that situation in India while having a huge fiscal deficit. No country can go on borrowing indefinitely, particularly from external sources. We do not need to go back to the situation we witnessed at the beginning of the nineties and late eighties.”

Mr Mukherjee said that the strong growth in exports (went up 31.4 per cent in April-February 2010-11 to $208 billion) has led to lower current account deficit than was anticipated, which has given the Government the confidence to aim for an ambitious fiscal deficit target of 4.6 per cent of GDP for 2011-12.

“Taking advantage of the buoyancy in revenue, both direct and indirect taxes, I thought this is the time to further tighten the belt, so that fiscal deficit could be brought back to manageable limits. The net market borrowing at Rs 3.43 lakh crore is also marginally lower in absolute terms than Budget estimates for 2010-11. After forming the Government in UPA II, in the full Budget in July 2009, I stated that this level of fiscal expansion is not sustainable and we shall have to come back to fiscal consolidation. I do believe that fiscal expansion that we had to resort to, to overcome the (financial) crisis generated elsewhere, had an adverse impact domestically,” he said.

Check on expenditure

“The Government has sought to meet street expectations of a healthy level of fiscal consolidation. This is to be achieved by crunching on the expenditure side significantly, with non-Plan expenditure likely to remain flat for 2011-12. Growth in the Plan expenditure is also restricted to 11.8 per cent rise compared to a rise of 30.8 per cent in 2010-11. Achieving this fiscal target could be difficult in the light of likely higher subsidy bills (especially on fuel),” said Mr Indranil Pan, Chief Economist, Kotak Mahindra Bank.

The Finance Minister also said that the Government has abstained from a 2 per cent rollback in excise duty in Budget 2011-12 in favour of both improved companies' business margins and to pave the way for a unified rate under the upcoming Goods and Services Tax regime. He also expressed the hope that an exercise on setting up an expenditure monitoring committee would be taken up in the 12{+t}{+h} Plan (2012-17).

>roudra.b@thehindu.co.in

Published on March 27, 2011

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