The promised fiscal consolidation pro-cess will begin from this year itself and the attempt will be to ensure the Centre?s fiscal deficit will be ?as close as possible to the budgeted level of 5.1% (of gross domestic product)?, department of economic affairs secretary Arvind Mayaram told FE. He added that the Vijay Kelkar committee entrusted with preparing a new, ?very clear? road map for fiscal correction will also recommend specific steps, including those required to be taken in the current year.
The committee will give its report to the finance ministry next week.
A key member of finance minister P Chidambaram?s team, Mayaram, who took over as DEA secretary on August 1, said ?both direct and indirect investments? in the economy would be given a fillip through policy and administrative action. He said the Securities and Exchange Board of India (Sebi) was finalising another set of ?reform measures? for capital markets in line with the objective of getting savers to look at financial instruments rather than gold or real estate. ?These measures will not be delayed… You will get to hear from us in 15-20 days,? he said, without giving details. On August 16, Sebi had announced a slew of measures aimed at helping firms raise resources and persuading savers to invest in mutual funds.
Without elaborating on how the requisite spending control would be achieved (integral to which is cutting oil and nitrogenous fertiliser subsidies to curb revenue expenditure), the official said the Kelkar panel was seized of the matter.
He, however, said that fiscal consolidation would not be at the cost of the government?s own productive investments. ?It is vitally important to bolster the economy?s productive capacity. While reviving investor confidence is the highest priority, the government will do its bit by pushing up its own productive investments.. Even PSU investments will be consciously encouraged,? he said.
The official conceded it would be a difficult task to meet the targetted revenue growth of 19.7% in 2012-13 given the growth slowdown, but said: ?Fiscal consolidation is very much on the immediate agenda. We are looking at all options very closely and our firm commitment will be demonstrated through actions to be taken over the next few weeks.? When asked how the finance ministry viewed the prospect of prominent rating agencies stripping India of its investment grade credit rating, Mayaram said they (the agencies) would have no reason to do so as the government has shown its willingness to address budget deficits in a credible and time-bound manner. ?That (the revisions of India?s sovereign outlook to negative by Standard & Poor?s and Fitch) represents their perception. We?re sure they will take into account what the government is doing (to reduce the deficit),? he said. ?Our efforts will convince the rating agencies as much as global investors.?
Emphasising the need for restoring investment rate close to the pre-crisis level (it fell a considerable 3.4 percentage points in the four years to 2011-12), he said removing bottlenecks was much more important for addressing investor pessimism than (high) interest rates. ?Interest rates get factored into prices,? he said. He, however, added there was little doubt that monetary tightening by the Reserve Bank of India contributed to slowing of the economic growth.
?We need to rein in inflation… High inflation is not good for the economy,? the secretary said, adding, ?chiefly, food inflation will be dealt with.? With food stocks being ?good? and some bridging of the monsoon deficit as is seen in the vast improvement in sowing activity in drought-prone states, the government was confident of addressing imminent pressures on food prices. ?We will take measures to ease food supplies by productive investments and market operations, if needed,? the official said. Asked what would be the comfortable level of inflation for the government, Mayaram did not give a direct answer, but said the Kelkar Committee might have something to say on this aspect as well.
Annual inflation, as measured by the wholesale price index, declined to 6.87% in July from 7.25% in the previous month and 9.36% a year ago. Analysts, however, warned that core inflation, which the RBI views more closely, has increased sequentially by 59 bps to 5.44% in July, signalling persisting inflationary pressures.
Mayaram listed measures being taken to boost investor confidence ? the finance ministry will take infrastructure projects above Rs 1,000 crore to the Cabinet Committee of Economic Affairs for speedy clearance; investors will be told how long the approvals will take for projects of each kind (so that there is a ?predictable regime?) and public-private-partnership approval committee will now meet more frequently.
He said land acquisition was not as big an issue as it is made out to be. Issues of land conversion, master-planning and zoning are what investors routinely face, and these can be addressed to some extent by the Centre itself. A Bill on land acquisition for industrial purpose is being finalised by the rural development ministry after it was vetted by the designated parliamentary panel. A recent report in FE said the ministry wants the state to have role in acquisition of land for projects involving private money, provided the projects are in ?public interest.?
Thanks to the slowdown in growth which hit revenue buoyancy and the inability of the government to control expenditure, there was a big slippage on the fiscal front in 2011-12, negating some corrections achieved in the previous two years despite the incomplete winding down of the fiscal stimuli. The centre?s fiscal deficit for 2011-12 stood at 5.8% of the GDP, a trifle below the revised estimate of 5.9%, but much higher than 4.6% originally budgeted. There are fears of slippage this year as the deficit at the end of June quarter was 37% of the budgeted deficit for the full year and with little headway seen on spending control. Chidambaram has recently said the fiscal deficit target for the current year would be re-assessed after the mid-year review.
