Placing emphasis on the fiscal deficit, which is exceeding the estimate of 4.6% of the gross domestic product (GDP) for 2011-12, the Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia in an interview to a TV channel said, the government will signal fiscal consolidation in the Budget, but is unlikely to take massive contractionary steps. He said, ‘the broad focus will be on cutting down the fiscal deficit and containing subsidies, but it will not be an easy task.’ Adding further he said, ‘that the government will make its move gradually. Reducing subsidies will have no impact on inflation whatsoever. Food inflation is likely to cool off and stabilize at 5-6%.’
He also said that given the global economic slowdown, people did recognize that fiscal deficits all over the world had expanded but they wanted to be reassured that the corrective process was underway. He hoped the Budget would succeed in sending that signal. Moreover, the Reserve Bank of India (RBI) in its third quarterly monetary policy review last week, too, had highlighted the need for reducing the fiscal deficit.
According to Ahluwalia, reducing subsidies would be a tough task as we were in the middle of an election in very important parts of the country. However, in any case it would not be possible in one year, he reasoned. He further said, that the Planning Commission had always maintained that they cannot achieve the planned targets for investments, including expenditure in critical social sectors, if they were not able to contain subsidies. Another key concern for the government in the past few months had been its disinvestment target, to which Ahluwalia said that it was alright if the government did not meet its target. Since disinvestment was governed by market conditions, it was probably sensible for the government to hold back right now.
Speaking on India’s GDP growth, he was optimistic and felt that India could cross the 7% growth mark. The global slowdown would have its impact, but the sluggish growth in India was due to domestic supply constraints. If these were taken care of, India could well be on the path of recovery. He said, in his opinion the government had identified a number of steps, particularly in coal, power, energy related sectors, where impediments to implementation of ongoing projects could be removed and if people saw that happening, it would improve investor sentiment leading to higher growth than what India has seen in the current fiscal year.
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