New Delhi: India will start reforms including that for subsidies, taxes and stake sales of state-run firms to bring the fiscal deficit under control, Union minister of state for finance Namo Narayan Meena told lawmakers on Friday.
Meena said in a written reply to Parliament that the government was aiming to cut the deficit to 5.5% of gross domestic product (GDP) in FY11 from an estimated 6.8% in FY10, and further reduce it to 4% in FY12.
India’s financial markets were rattled after the budget projected on Monday a record Rs10 trillion spending that widened the deficit and increased borrowing needs for FY10.
But finance minister Pranab Mukherjee justified the move saying higher spending was needed to stimulate a slowing economy.
“To bring the fiscal deficit under control, the government will initiate institutional reform measures which will encompass all aspects of budget such as subsidies, taxes, expenditure and disinvestment,” Meena said.
In reply to another question, Meena said government’s subsidy bill mainly for cheaper grains for the poor and selling fertilizers and oil at less than market price was expected to cross Rs1 trillion in 2009-10.
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The deficit more than doubled to 6.2% in FY09 after the government boosted spending on subsidies, debt scheme for farmers, cut factory-gate duties to stimulate a slowing economy hit by high borrowing costs and then the global financial crisis.
India is exploring ways of raising resources from non-tax sources such as sale of third generation wireless spectrum (3G) and stake sales in state-run firms to cushion the deficit.
“The short term fiscal stimulus now provided has to be balanced against long term prudence and fiscal sustainability,” Meena said.
“The government intends to return to FRBM (Fiscal Responsibility and Budget Management) target for fiscal deficit at the earliest and as soon as the negative effects of the global crisis on the Indian economy have been overcome,” he added.
Stimulus For Growth
For a medium term perspective, he said the government awaits the recommendations of the 13th Finance Commission, set up to fix the formula for sharing of federal receipts with states.
Policy makers say the economy could grow close to 7% in FY10, faster than 6.7% of last year, after the raft of stimulus measures and rate cuts by the Reserve Bank of India (RBI).
“An unimpaired financial system, large domestic market and fiscal and monetary stimulus packages have been responsible for the resilence exhibited by the Indian economy against the adverse impact of global economic slowdown,” Meena said.
“The forecast growth for fiscal 2009-10 is around 7% plus or minus 0.75%,” he added.