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Even as the RBI Governor, D. Subbarao was readying his monetary policy review, Finance Minister P. Chidambaram presented a five-year fiscal consolidation plan that aims to cut the fiscal deficit to 3 per cent of GDP by 2016-17. While the Finance Minister wants “everyone” (read, Reserve Bank of India) to take note of it, the RBI may not oblige, worried as it is by the inflation.
The Chidambaram plan, based on the Kelkar panel’s recommendations, talks about a fiscal deficit target of 5.3 per cent against the budgeted 5.1 per cent. It also intends bringing the deficit down to 3 per cent by the terminal year of the 12th Plan period, that is, 2016-17.
The plan comes at a time when the RBI is in a dilemma over whether to rein in headline inflation and leave policy rates unchanged, or to march with the Government, which is focusing on growth, and cut rates. Annual headline inflation, based on the monthly wholesale price index (WPI), stood at 7.81 per cent in September compared with 7.55 per cent in August.
Asked whether such a plan would have any impact on the monetary policy review, Chidambaram said, “I am making this statement, so that everybody in India acknowledges the steps we are taking and also acknowledges that the Government is determined to bring about fiscal consolidation. I sincerely hope that everybody will read the statement and will take note of that.”
He admitted that budgeted fiscal deficit target of 5.1 per cent was challenging. “I think part of my job is to tell the truth as I see it. I think 5.1 per cent is challenging and 5.3 per cent is doable. So, we intend to work hard and achieve 5.3 per cent,” he admitted.
The Minister also drew up a blueprint to achieve fiscal consolidation. “The Government expects to realise the budgeted receipts under ‘disinvestment’ and ‘non-tax receipts.’ Everybody will be made to realise the revenues budgeted under ‘tax receipts’,” he said. On the expenditure side, Chidambaram said the Government hoped to contain and economise both on the Plan and non-Plan side.
“While funds will be made available for essential expenditure, especially capital expenditure, every effort will be made to avoid parking or idling of funds… The Government will increasingly rely on Aadhaar-enabled direct cash transfers of merit subsidies to eliminate duplication or falsification,” he added.
> Shishir.Sinha@thehindu.co.in
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