Hong Kong: Expressing India’s commitment to fiscal prudence, finance minister P. Chidambaram on Tuesday said the government will contain deficit at 5.3% of GDP (gross domestic product) in the current year, and bring it down to 4.8% in 2013-14.
“The first step is fiscal consolidation and (India is) committed to the path of fiscal prudence. At the end of this year we will achieve the target of 5.3% of fiscal deficit and next year I will budget it no more than 4.8%,” he told PTI here.
Chidambaram said the government is committed to lowering the fiscal deficit by 0.6% every year for the next five years.
“Under no circumstances will I agree to bridge the fiscal target of 5.3% (in current fiscal),” he said.
Rising expenditure on subsidies has put pressure on government finances. This has prompted the government to raise the fiscal deficit target for the current fiscal to 5.3%, from 5.1% announced in budget.
Chidambaram said the fiscal correction measures that the government has undertaken in the recent months will help avert the threat of a ratings downgrade. Ratings agency Standard & Poor’s and Fitch have threatened a downgrade of India’s sovereign ratings.
“I think the steps we have taken assured everybody that there will not be a rating downgrade. They were concerned about our ability to stay on course after we announced the decisions. They are happy we stayed on course after announcing FDI (foreign direct investment) in multi-brand retail.
“They were concerned that we will not correct fuel prices. But even the small steps we gave taken gas given them confidence that we will correct the fuel prices. I think each of the measures has boosted their confidence in the Indian economy,” he said.
The government has taken a host of steps to contain the outgo on subsidies, including limiting the number of subsidised LPG cylinders to 9 per family a year and partial deregulation of diesel prices.
As per the fiscal consolidation roadmap outlined by the finance ministry, the fiscal deficit would be brought down to 3% of the GDP by 2016-17 fiscal.
“As fiscal consolidation takes place, and investor confidence increases, it is expected that the economy will return to the path of high investment, higher growth, lower inflation and long term sustainability,” Chidambaram had said while unveiling the fiscal consolidation roadmap in November last year.
Containing the fiscal deficit at 5.3% of GDP this year would also depend on the revenue receipts from disinvestment and spectrum sale as also the tax mop up.
So far this fiscal, the government has been able to raise Rs.6,900 crore through disinvestment of PSUs.