Govt will get close to achieving fiscal deficit target this year: Kaushik Basu

The fiscal deficit target of 4.6 per cent of GDP for 2011-12 is not an easy one, but the Government will get close to it, said Dr Kaushik Basu, Chief Economic Adviser, Ministry of Finance.

“There is no thinking right now of revising the 4.6 per cent fiscal deficit target, but we are aware that it is not an easy target. We are sticking to the target and trying to go after that,” said Dr Basu on the sidelines of at FT-Yes Bank International Banking Summit.

Fiscal consolidation

Referring to the current discussion in industrialised countries on going a little slow in terms of fiscal consolidation because there is a recessionary tendency in the world, he explained that “if you too quickly pull back on demand you may aggravate the recessionary situation.

“India also has to be somewhat mindful of this, especially given that our industrial growth over the last couple of months has not been very good.”

On fiscal developments undermining the RBI's efforts to tame inflation, Dr Basu replied that he didn't think so.

“It is really a shared effort between the RBI and Ministry of Finance in controlling inflation. On our part the effort is to rollback on the fiscal stimulus which was given out in 2008-09. The RBI is trying to pull back on liquidity in the market,” he averred.

Dr Basu observed that questions could be raised as to whether the RBI is moving faster or slower than the Ministry of Finance. But the fact remains that both are moving in the same direction in terms of mopping up demand, that is, cutting back on fiscal deficit.

“This year, it is true it is a very tough target (fiscal deficit) that we are after, that is, 4.6 per cent. But the broad direction is a pullback. So, while there can be different views as to whether one should have moved a bit more rapidly than the other, the broad direction is the same and we are working together to fight this very difficult inflation challenge that India is facing,” he said.

The Government may come as close as possible to the fiscal and revenue deficit targets if the slack in the system in terms of profligacy and wasteful subsidies were tackled and the Government goes after the disinvestment programme, felt the Chief Economic Adviser.

Rupee depreciation

Emphasising that rupee depreciation does put some pressure on the economy Dr Basu explained that there were two forces behind this. One is that India has had inflation for close to two years, greater than that in the US.

So, some part of the correction in the exchange rate is correction for the fact that there has been greater inflation, so there has been some loss of value from that.

On another side, on which the country has absolutely no control, is that every time there is some turbulence in Europe, money from all over the world seems to recede and go into US treasuries because there is a feeling that if an investor may not earn money in the US treasuries but at least it is secure.

“Europe right now is a very big concern and with that there is this outflow of money that is taking place going into the US treasuries and that is also putting pressure in terms of depreciation of the rupee,” said Dr Basu.

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