FM cuts fisc deficit targets, eyes Rs 30Kcr from divestment

Moneycontrol Bureau

Finance Minister P Chidambaram on Monday set a fiscal deficit target of 5.3% for the current financial year, against the 5.1% forecast by his predecessor Pranab Mukherjee in the Union Budget. He was addressing a press conference to unveil the details of five-year road map for fiscal consolidation. "Part of my job is to tell the truth as I see it," Chidambaram said, adding "5.1% is challenging, but 5.3% is doable." He said fiscal consolidation was no longer an option, but had become imperative and the government was determined to do everything to address the issue. However, stock market investors are not convinced that the revised fiscal deficit target can be attained. Both benchmark indices--Sensex and Nifty--were largely unchanged when Chidambaram mentioned the figure. Economists at most leading brokerages expect this year's fiscal deficit to be in the range of 5.7-5.9%. The Kelkar Committee set up to guide the government on fiscal consolidation has forecast this year's fiscal deficit at 6.1%. Chidambaram said his ministry has accepted some of the recommendations made by the Kelkar Committee. But he outlined no clear measures on the politically sensitive issue of subsidies, and how the government would try to reduce them. According to data on the finance ministry's website, gross fiscal deficit for the April-August period stood at Rs 3,37,538 crore, or 66.3% of the Budget Estimate of Rs 5,13,590 crore for the full year. With the government lacking the political strength or the will to push through tough measures on reducing subsidies, there is enough reason for the market to be skeptical about the fiscal deficit target. Referring to fiscal consolidation in 2012-13, Chidambaram expressed confidence that the government would be able to raise Rs 30,000 crore from disinvestment and Rs 40,000 crore from sale of spectrum. Government also expects to be able to contain and economise on expenditure, both on Plan and non-Plan side. "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 said. India's fiscal deficit widened to 5.8 percent of GDP last year from 3.5 percent in 2007/08, and could hit 6.1 percent this fiscal year that ends in March, according to a government panel report last month. Chidambaram said he hopes the RBI would take note of the government's fiscal consolidation plan as the government pushes ahead with initiatives to stimulate a sluggish economy. The central bank, which is not expected to cut rates on Tuesday, has previously called for fiscal consolidation measures from the government. The central bank's governor, Duvvuri Subbarao, met with Chidambaram on Friday. "As fiscal consolidation 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," Chidambaram told a news conference in New Delhi on Monday. Chidambaram said the government is determined to address the twin challenges of current account deficit (CAD) and fiscal deficit. He said the CAD is expected to come down to USD 70.3 billion or 3.7 percent of GDP in the current fiscal, from USD 78.2 billion or 4.2 percent in 2011-12. "Government is confident that the CAD will be fully financed by capital inflows, and expects that a substantial part of it will be in the form of Foreign Direct Investments (FDI), foreign institutional investment (FII) and External Commercial Borrowings (ECBs)," Chidambaram said. When asked about the introduction of the amended Direct Taxes Code (DTC) Bill, Chidambaram said, it is under review and would be presented to Parliament after taking into account the recommendations of the Standing Committee. (With inputs from agencies)