M A I N   N E W S

FM unveils fiscal consolidation plan
Accepts Kelkar committee suggestions
Plans to bring down deficit to 3% in 5 years
Tribune News Service

New Delhi, October 29
Finance Minister P Chidambaram today outlined a plan for fiscal consolidation and cut the deficit to 3 per cent in the next five years. Unveiling a roadmap, Chidambaram said as fiscal consolidation takes place and investors’ confidence increases, it is expected that the economy will return to the path of high investment, higher growth, lower inflation and long-term sustainability.

The Finance Minister announced that the government had accepted the recommendations of the Kelkar committee on fiscal consolidation pertaining to taxation, disinvestment and expenditure.

On the taxation side, the committee has strongly advocated a transition to the Goods and Services Tax (GST) and a quick review of the Direct Taxes Code (DTC) before its introduction and passing in Parliament. Besides, the committee has recommended administrative measures to improve tax collection.

On disinvestment, the committee has suggested a number of new models for disinvestment and has also urged the government to disinvest its residual stake in some companies that were privatised earlier. On the expenditure side, the committee has suggested rationalisation of schemes and strict control and monitoring of expenditure. These recommendations are wholesome and have been accepted by the government, said Chidambaram, adding that all flagship programs of the government for the poor will be protected. Regarding subsidies, the government will also increasingly rely on Aadhaar-enabled direct cash transfers of merit subsidies to eliminate duplication or falsification.

While the roadmap announced was a little short on specific steps, it clearly showed the resolve of the government to check the unacceptably high fiscal deficit and get the economy back on the growth track. Coming a day before the announcement of the RBI monetary policy, it was also seen as a signal to the central bank that while the government is moving on the fiscal correction track, the RBI should take steps to cut interest rates.

The Finance Minister sought the support of the people in implementing the fiscal consolidation plan and said there was no option apart from doing this. “This plan is necessary, this plan must be implemented and the government is very serious about implementing this fiscal consolidation plan.”

For the current year, the Finance Ministry is aiming to check the fiscal deficit at 5.3 per cent as compared to 5.1 per cent announced in the Budget. Chidambaram said 5.3 per cent was “doable” with the five year plan aiming to reduce it to almost half to 3 per cent by 2016-17. Last year, the figure was 5.8 per cent.

Referring to fiscal consolidation in the current year, Chidambaram expressed the confidence that government would be able to raise Rs 30,000 crore from disinvestment and Rs 40,000 crore from sale of spectrum. Showing the government’s intent to meet revenue targets and cut expenditure, Chidambaram said every effort will also be made to realise the revenue budgeted under tax receipts. The government also expects to contain expenditure, both on Plan and non-Plan side.

“While funds will be made available for essential expenditure, especially capital expenditure, every effort will be made to avoid parking or idling of funds,” he said.

The Finance Minister said the government is determined to address the twin challenges of current account deficit (CAD) and fiscal deficit.

He said the CAD is expected to come down to $ 70.3 billion or 3.7 per cent of GDP in the current fiscal, from $ 78.2 billion or 4.2 per cent in 2011-12. He said that the current account deficit can be fully financed by capital inflows, and expects that a substantial part of it will be in the form of Foreign Direct Investments (FDI), foreign institutional investment (FII) and External Commercial Borrowings (ECBs). 

PC’s roadmap Govt to restrict fiscal deficit to 5.3% in 2012-13 of the GDP and reduce it to 3% by 2017 Govt hopeful of raising `30,000 crore from disinvestments and `40,000 crore from sale of Spectrum Funds will be made available for essential expenditure, especially capital expenditure	The message The plan clearly shows the resolve of the government to check the unacceptably high fiscal deficit and get the economy back on the growth track Coming a day before the announcement of the RBI monetary policy, it is also seen as a signal to the central bank to take steps to cut interest rates
Fiscal consolidation will help in moving to a regime of low inflation and high growth. — P Chidambaram, FM