Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan believes the next government will have a difficult time trying to rein in fiscal deficit at 4.1 percent.
Rangarajan further states that one can expect tremendous pressure on increasing the plan expenditure that Finance Minister P Chidambaram left unchanghed in today’s Vote on Account.
Below is the edited transcript of the interview.
Latha: What are your thoughts, an assumption of nominal gross domestic product (GDP) of 13.4 percent and already tax giveaways about Rs 10,000-20,000 crore in the first quarter because of excise duty cuts, you think achievable 4.1 percent next year or life is very tough for the next government?
Rangarajan: Achieving 4.1 percent is a difficult task because what is being indicated is a progressive reduction in the fiscal deficit at the rate of 0.5 percentage points every year. That is why 4.6 percent is supposed to go to 4.1 percent. This is an interim-budget and the forecast for 2015 are based on certain assumptions.
I certainly believe that going ahead there are going to be more expenditures on certain counts and the planned expenditures have been pegged at the last years level. There will be pressure on increasing the planned expenditures therefore a clear cut program for raising revenues and cutting on subsidies or reducing the subsidies as a proportion of GDP will become imperative.
If growth picks up, as it is expected to, then that itself will help in the generation of greater revenue. However, we should not rule out the possibility of additional tax measures in the coming years in order to be able to boost the revenue.
Latha: Will this mean that we you are going to have higher market borrowing also? The market is extremely pleased with a lower market borrowing. Rs 5.97 lakh crore is the overall gross borrowing compared to Rs 6.29 lakh crore in the current year FY14; should you brace for a higher than this number of Rs 5.97 lakh crore market borrowing?
Rangarajan: The market borrowing is given by way of fiscal deficit in this 4.1 percent of the GDP. So, the calculation will indicate to you where it will be. It could be more or less at this year’s level because the deficit as a proportion of GDP is going down. However, at the same time, GDP is growing, therefore I have not calculated the numbers but it will be more or less in this region.
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