an empowered panel of state finance ministers. “The reports submitted on Tuesday, however, have left the issue of a GST rate to the empowered panel to decide for itself,” said a source.
The FM said fiscal prudence will be a key part of his budget and pledged to deepen economic policy overhaul by implementing GST. For the time being, the focus is on expenditure control, but going forward, expanding tax base would be key to fiscal correction.
“It’s absolutely important to signal to the world that we are on the path of fiscal consolidation,” overseas reports said quoting Chidambaram. Approval for GST by December is ambitious but doable, he said.
He was confident of not breaching the country's fiscal deficit to his target of 5.3% of GDP this year “under any circumstance”. The idea is to improve tax collection and expand the tax base to progressively cut fiscal deficit by 0.6% until it falls to 3% in four years.
He is also hopeful of restricting fiscal deficit to 4.8% of GDP next fiscal. India is curtailing spending in the short term but hopes to stick to fiscal consolidation path by increasing revenue by simplifying tax procedure, not by raising tax rates. The recent rail fare raise itself may add $1 billion revenues.
Chidambaram said he would like interest rates to moderate, an apparent appeal to the RBI which is preparing for a monetary policy review on January 29. For the central bank, wholesale price inflation at 7.18% in December is still a concern. The finance minister said the final call on borrowing costs rests with the RBI.
The minister said there is no reason for a credit ratings downgrade. Standard & Poor’s and Fitch Ratings had last year warned of stripping the country of its investment-grade credit rating on risks including fiscal and trade deficits.
The minister said the country has taken small but significant steps in the recent past. “Add all these together, and we will see we have traveled quite a distance. There’s no case at all to downgrade India,” he said. The minister explained to the investor community about last week's freeing of diesel price from government control that could eliminate oil subsidy entirely in two years, opening up retail and aviation businesses to greater foreign ownership, setting up a cabinet panel to clear pending major investment projects and easing of rules on foreign borrowing for select businesses.
Chidambaram also told investors about last month's