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Fiscal deficit target reachable with $100 oil: Montek

Fiscal deficit target reachable with $100 oil: Montek
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First Published: Tue, Mar 01 2011. 03 29 PM IST
Updated: Tue, Mar 01 2011. 03 29 PM IST
New Delhi: The government said the new budget’s target to slash the fiscal deficit to 4.6% of GDP, a goal many economists deride as optimistic, is achievable even if oil averages $100 a barrel for the year.
Montek Singh Ahluwalia, deputy chairman, Planning Commission, also said no decision had been made on when to submit diesel prices to market forces, a long-delayed move that would ease New Delhi’s subsidy burden but add to inflation and anger voters ahead of elections in five states.
Also Read | Budget 2011 (Full Coverage)
On Monday, finance minister Pranab Mukherjee said India’s economy would grow at about 9% in the fiscal year starting in April and New Delhi would cut its fiscal deficit to 4.6% of GDP from 5.1% in the current year, a figure that was flattered by $23 billion in telecoms licence revenues.
“He has committed himself to a 4.6% fiscal deficit. In a way it does not matter how he achieves it. I mean, in the course of the year if things turn out to be different, and there are many things that could turn out to be different, he’ll have to do something,” Ahluwalia said on Tuesday.
“The nature of fiscal responsibility is not that I carefully calculate everything and give the right number. He just says, look, I am going to manage the economy so that I end the year with 4.6%. I think he is well within a reasonable margin of that,” he told Reuters in an interview.
Monday’s budget was greeted with scepticism by many observers worried about a potentially huge subsidy burden if global oil prices remain elevated and India enacts a costly new food security bill during the year.
Brent crude traded around $112 per barrel on Tuesday, down from close to $120 per barrel last week, its highest in more than two years, largely on fears that political upheaval in Libya would spread in the Middle-East.
Some economists, meanwhile, expect India’s economic growth to slow from the 8.6% it is on track to reach in the current fiscal year that ends on 31 March.
“It will be difficult for the deficit targets to be met as expenditures have been under-budgeted and revenues have been over-budgeted,” Goldman Sachs economists wrote after the budget.
“The expenditure targets are ambitious, especially on subsidies,” they wrote, noting that oil subsidies in the next year’s budget are 40% lower than the oil subsidies in the current year.
Ahluwalia, who along with Prime Minister Manmohan Singh was a key architect of India’s economic liberaliztion in 1991, said he expects the unrest in the Middle-East to subside in the next month or six weeks, which would take pressure off crude prices.
“I think if oil prices remain at or just below $100 per barrel on average during the year, then I think he had made a fair amount of provision for petroleum subsidies,” he said.
Last year, India freed petrol to market pricing but it still sets prices for the much more widely used diesel, as well as cooking fuels.
“The policy is diesel should also be adjusted. But you know the problem is this is a politically sensitive issue, so I think there’s no clarity on that,” Ahluwalia said.
“Deliberately, we’ve not indicated when the adjustment is going to be made. I think if oil prices had not shot up as much as they did, probably the original intention of decontrolling diesel in phases would have been implemented,” he said.
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First Published: Tue, Mar 01 2011. 03 29 PM IST
More Topics: Oil | Crude | GDP | Fiscal deficit | Economy |