New Delhi: Finance minister Pranab Mukherjee said on Tuesday that the government will find it hard to meet the target of keeping the fiscal deficit at 4.6% of gross domestic product (GDP) in the year to March because any belt-tightening may slash jobs and slow the economy even further.
“This (fiscal deficit) is a difficult target, given the deterioration in the global economy and its impact on India over the last three to four months,” Mukherjee said in a statement in the Lok Sabha on Tuesday. “We have to be careful not to over-do ourselves in reaching this target since that can have an excessive slowing down impact on growth.”
Mukherjee indicated high interest rates are hurting economic growth.
“Going forward, I am sure the RBI (Reserve Bank of India) takes into account the important concern of balancing the targets of controlling inflation and keeping up growth and employment generation,” he said.
RBI has increased policy rates 13 times since March 2010 to curb inflation.
Facing opposition: Finance minister Pranab Mukherjee arrives at Parliament on the first day of its winter session in New Delhi on Tuesday. PTI
The government is committed to bringing down inflation to acceptable levels and Mukherjee expects it to slow to 6-7% by end March. Wholesale-price inflation stood at 9.7% in October.
Mukherjee said the demand-supply mismatch, rapid domestic economic growth, high global commodity prices and a falling rupee are to blame for high inflation.
“During periods of rapid growth and structural change, as India is currently undergoing, inflation does tend to increase. We have seen this happen in all emerging economies that have gone through such periods of policy changes and of rapid growth ranging from China, South Korea and Vietnam to Argentina and Brazil,” he said.
To address supply side problems, Mukherjee said there is an urgent need to amend and enforce the Agriculture Produce Marketing Act to enable farmers to bring their output to shops and allow retailers to buy directly from farmers.
“This would bring better remuneration to farmers, check wastage and allow competitive prices in retail markets,” Mukherjee said. “Collectively, we also need to take steps that allow unhindered flow of food and other perishable items from one region to another.”
The opposition Bharatiya Janata Party attacked the government for the continued rise in prices in the “absence” of any concrete steps.
“What concerns us is that the common man will not tolerate the continued price rise in the country. We will not be surprised that rising inflation will become a reason for them to resort to violence,” said BJP leader and former finance minister Yashwant Sinha.
Sinha criticized Mukherjee’s 11-page statement on prices that was introduced in the Lok Sabha
“We dismiss the finance minister’s statement,” he said. “We are not satisfied with the government’s excuses on price rise and inflation.”
Sinha said the government remains totally paralysed on inflation. “Instead of finding a solution, it is ignoring the problem,” he said.
Mukherjee’s statement came in the wake of Left parties insisting on an adjournment motion in Parliament on rising prices.
Communist Party of India (Marxist) leader Sitaram Yechury, who met Mukherjee in Parliament, said, “Discussions on the price situation have been held in the past two sessions and unanimous resolutions passed earlier calling upon the government to take all measures to protect the common man. But no action has been initiated so far. Food inflation has risen to 12% and the overall inflation rate is escalating exponentially.”
Both houses of Parliament were adjourned without any major business being conducted amid acrimonious scenes, with members belonging to various parties raising different issues.
Earlier in the day, Prime Minister Manmohan Singh indicated the Congress-led United Progressive Alliance (UPA) government was resolved to push through its reform agenda. “As you all know, the global economy is facing serious difficulties and if we don’t manage our affairs well we can also go down. Our country’s sustained development and prosperity demand that many of those Bills should be converted into acts of our Parliament,” Singh told reporters outside Parliament on Tuesday.
The winter session of Parliament, which started on Tuesday, is scheduled to run till 21 December. The government has listed 31 items of legislation including the Pension Fund Regulatory and Development Authority Bill aiming to promote old age income security by regulating funds; the Food Security Bill that makes 75% of the rural population and 50% of the urban population eligible for subsidized foodgrain for consideration by Parliament.
“Fiscal and monetary policy at present looks like following different paths,” said N.R. Bhanumurthy, economist at the National Institute of Public Finance and Policy. “There needs to be better coordination between the two sets of policymaking.”
The government is unlikely to be able to achieve the fiscal deficit target of 4.6% of GDP due to lower disinvestment accruals, falling tax collections and rising subsidies, he said. “We expect fiscal deficit to touch 5.1% of GDP this fiscal.”
PTI and Reuters contributed to this story.