Achieving fiscal deficit target will be difficult: Rangarajan

The Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan on September 29 said that the government is likely to miss the fiscal deficit target of 4.6% for the current fiscal as growth is expected to moderate.

The PMEAC Chairman said 'In the current year, the budgeted fiscal deficit is 4.6% (of GDP). It is going to be difficult to achieve this. All the numbers do not gel well,' however by adding further he said 'But I think it should be one of efforts to ensure that fiscal deficit is in the lines of what was estimated.”

Earlier, the economic growth was estimated at 8.2% for 2011-12. PMEAC Chairman said despite a stronger agricultural growth than what was estimated earlier, the economy is expected to grow about 8% during the current fiscal as there are serious concerns. 'Therefore, taking all these factors into account, I believe the growth rate of the economy can be close to 8% per annum,' he added. However, Rangarajan believe that the India can grow by 9% given the saving and investment rates.

Identifying Inflation, balance of payment and fiscal consolidation as the short-term constrain to growth, Rangarajan said 'I believe there are short-term concerns and medium-term constraints which will come in the way of achieving 9% growth'.

Backing Reserve Bank of India’s monetary policy stance on inflation, he said 'In fact today the non-food manufacturing index exceeds 7.5 per cent. Therefore, we should be using monetary policy to tame inflationary expectations.' By adding further he said 'We should use monetary policy in way that demand preference is brought down'.

In last 18 months, the RBI has increased its short term lending and deposit rates by 12 times to control inflation. However, the headline inflation measured by the Wholesale Price Index (WPI) has been hovering around two digit mark.

On the Current Account Deficit (CAD), PMEAC Chairman said 'I don't think that by taking both imports and exports of goods and services taken together we might exceed 2.5% of GDP of the CAD this year.' So far, financing of CAD has not been a problem. The approach paper of 12th Five-Year Plan and our own calculation indicates that we will have CAD of 2.5% of GDP'.

PMEAC Chairman said at present, there is no problem in financing CAD of 2.5%. By adding further he said, 'So long we continue to maintain a healthy growth rate and so long as fiscal deficit continue to remain at reasonable control, there should be no problem in attracting capital flow'.

However, he said that the capital flows by very nature are very volatile. It is influenced by both domestic and international factors. It is also affected by push factor and as well pull factor. So, therefore, we need to moderate our dependence on the financing of CAD through capital flows.

On the borrowing he said 'I think the effort of the government will be to retain the fiscal deficit at the budgeted level and I do not expect the borrowing programme of the government of India as of now to exceed what was originally estimated'.