Brushing aside apprehensions expressed by a rating agency, Finance Minister P Chidambaram today said the government will stick to the path of fiscal consolidation and endeavour to narrow the deficit to 3 percent of gross domestic product by 2016-17.
Chidambaram spoke while inaugurating the Delhi Economic Conclave 2013 on 'The Agenda for the Next Five Years.'
Rating agency Fitch yesterday expressed apprehension that the poor performance of the Congress in the recent assembly elections could push up the Centre's fiscal deficit as there may be an "increased likelihood of political pressure to limit expenditure cut-backs."
Attributing the current economic woes to stimulus provided by the government to tide over the global crisis of 2008, RBI Governor Raghuram Rajan has said it eventually led to an overheated economy, high inflation and uncomfortable fiscal and current account deficits.
"While the stimulus did help growth initially, it eventually led to an over-heated economy, high inflation/wage growth and consequently deficits widening to uncomfortable highs," Rajan said at an Citibank event in New York on Monday.
According to Chidambaram, the task before India is to reverse these “unintended consequences” and lay the ground for faster, more inclusive and sustained growth over the next five years.
He said at the top of the list is fiscal consolidation. “There can be no compromise, and I speak for the government, there will be no compromise on the decision to walk on the path of fiscal prudence and contain the fiscal deficit step-by-step, year-by-year until we reach the goal of 3 percent of GDP in 2016-17,” the FM said.
Observing that India cannot afford a high current account deficit (CAD), which touched a record USD 88 billion in 2012-13, Chidambaram said the country should avoid importing gold and raw material that are available at home.
"Nor should India import coal when it has coal in abundance, nor should India tie itself in policy knots and be forced to import commodities which they have the capacity to produce and manufacture," the Minister said.
Chidambaram attributed high inflation to inaction by state governments, saying the onus of taking action against hoarding and profiteering by traders rests with them. "There is also a need to deal wisely with harvesting and marketing and deal strictly with hoarding and profiteering. Laws in this behalf -- the Agriculture Produce Market Committee Act and the Essential Commodities Act – are entirely in the domain of state governments.
"The powers of notification and enforcement under these acts are with the state governments. Yet, state governments are loathe to take actions on these acts. I think it is necessary to highlight the inaction of state governments in this regard, while accepting the central government must do all it can within its powers to moderate inflation."
Talking about the new game changers of the economy, Chidambaram said they would include the Direct Taxes Code, the Goods and Services Tax (GST), a higher level of foreign direct investment in insurance and the Indian Financial Code, a proposed law aimed at streamlining the financial sector. "Each of them requires building of a broad consensus. My experience has been that consensus is built over several months of hard work and then consensus crumbles when is hit by a seizure of political opportunism," he said.
Referring to recent legislative steps by the government, he said the Pension Act and the Companies Act "when fully rolled out will have profound implication on the Indian financial sector. The impact of the Companies Act will be beyond the financial sector."
The minister said legislative measures suggested by the Financial Sector Legislative Reforms Commission (FSLRC) would be pursued after due consultations.
(With inputs from PTI)
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