By Nick Mann | 30 October 2012
India is confident it will be able to reduce its budget deficit to 3% of gross domestic product by 2016/17, the country’s finance minister said yesterday.
Shri Chidambaram said the government plans to sell off state assets, introduce a new tax on goods and services and improve tax collection to cut the deficit, which reached 5.8% of GDP in 2011/12.
Ministers were ‘determined’ to take action, he added, following a warning last month from a state-appointed committee that otherwise the deficit would reach 6.1% in 2012/13. ‘This would have grave consequences for the economy [and] is, therefore, totally unacceptable,’ he noted.
The Kelkar Committee, chaired by economist Vijay Kelkar, made a series of recommendations for reducing the deficit in September, most of which were accepted by the government yesterday.
They include the introduction of a value-added tax – the Goods and Services Tax – and administrative measures to improve collection.
Chidambaram also endorsed proposals to sell off the government’s remaining stake in firms it has already privatised and to implement ‘strict control and monitoring’ of public spending.
‘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 explained.
The committee also recommended the reduction of subsidies for fuel, food and fertilisers, but Chidambaram did not mention these yesterday.
Stressing that the burden of fiscal consolidation would be shared ‘fairly and equitably’ by the Indian population, the minister said all ‘flagship’ programmes to help the poor and bring about inclusive development would be ‘fully protected’.
The plan would enable the Indian budget deficit to be kept down to 5.3% this year. It would then fall to 4.8% of GDP in 2013/14, 4.2% in 2014/15 and 3.6% in 2015/16, he 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,’ he added.
