STATEMENT OF
THE UNION FINANCE MINISTER SHRI P. CHIDAMBARAM ON FISCAL ROADMAP AND
CONSOLIDATION
PRESS RELEASE, DATED 29-10-2012
Please find below the text of the
Statement of the Union Finance Minister Shri P. Chidambaram on Fiscal Roadmap
and Consolidation made here today by him in a Press Conference:
"Shortly after I
assumed office, I issued a statement on August 6, 2012 outlining the steps that
would need to be taken to meet the challenges that face the Indian economy. At
the top of the list was the need for fiscal consolidation. I had referred to
the appointment of a Committee chaired by Dr. Vijay Kelkar to assist the
Government in formulating a path of fiscal consolidation. The Committee's
report was put on the website a few weeks ago.
The Economic Slowdown
In 2011-12, the
slowdown in the world economy, lower growth in India, higher inflation, lower
tax receipts and increased expenditure (including subsidies) led to
considerable fiscal stress. At the end of the year, the fiscal deficit was at
5.8 per cent of GDP. Government recognised that, if immediate corrective steps
were not taken, the economy may go into a cycle of low growth, high inflation
and high deficit. That would be unacceptable, given the need to generate jobs
and incomes for a large population, most of whom are young. Therefore, on
behalf of the Government, I reiterated our commitment to bring the economy back
on the high growth trajectory. Towards this end, some difficult but crucial
decisions were taken recently. It is a matter of satisfaction that, despite the
additional burden on certain sections of the people, by and large, the people
have understood the imperative need for such difficult decisions.
The Report of the
Kelkar Committee
The Kelkar Committee
has cautioned us that a business-as-usual scenario for the current year may
lead to the fiscal deficit rising to 6.1 per cent of GDP. This would have grave
consequences for the economy is, therefore, totally unacceptable. The Committee
has recommended a number of reform measures in taxation, disinvestment and
expenditure. On the taxation side, the Committee has strongly advocated a
transition to the Goods and Services Tax (GST) and a quick review of the Direct
Taxes Code (DTC) before its introduction and passing in Parliament. Besides,
the Committee has recommended administrative measures to improve tax
collection. On disinvestment, the Committee has suggested a number of new
models for disinvestment and has also urged Government to disinvest its
residual stake in some companies that were privatised earlier. On the
expenditure side, the Committee has suggested rationalisation of schemes and
strict control and monitoring of expenditure. These recommendations are
wholesome and have been accepted by the Government.
The Department of
Revenue and the Department of Expenditure have initiated action on the
recommendations of the Committee. The Department of Disinvestment has obtained
approval of the Cabinet for disinvestment in Hindustan Copper Ltd., NALCO,
SAIL, RINL, BHEL, OIL, MMTC and NMDC. Government expects to realise the
budgeted receipts under 'disinvestment' and 'non-tax receipts'. Every effort
will also be made to realise the revenues budgeted under 'tax receipts'.
Government also expects to be able to contain and economise on expenditure,
both on the Plan and the 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. As regards subsidies, Government will
also increasingly rely on Aadhaar-enabled direct cash transfers of merit
subsidies to eliminate duplication or falsification.
The Twin Deficits –
CAD and FD
Government is
determined to address the twin challenges of current account deficit (CAD) and
fiscal deficit (FD). During 2011-12, the CAD increased to USD 78.2 billion or
4.2 per cent of GDP. The Department of Economic Affairs, in consultation with the
RBI, has projected a CAD of USD 70.3 billion in 2012-13 or 3.7 per cent of GDP.
Any moderation in CAD would be welcome. 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 Investments (FII) and External Commercial Borrowings (ECB).
The Fiscal
Consolidation Plan
As regards the fiscal
deficit (FD), taking into account the steps outlined above and other steps that
are being implemented or contemplated, Government has decided to adopt the
following plan of fiscal consolidation during the period of the 12th Plan, i.e. from 2012-13 to 2016-17.
|
|
Year
|
Fiscal Deficit (%)
|
|
|
2012-13
|
5.3
|
|
|
2013-14
|
4.8
|
|
|
2014-15
|
4.2
|
|
|
2015-16
|
3.6
|
|
|
2016-17
|
3.0
|
The burden of fiscal
correction must be shared, fairly and equitably, by different classes of
stakeholders. However, as I said on August 6, 2012, "the poor must be
protected and others must bear their fair share of the burden." In
particular, I would like to emphasise that all the flagship programmes designed
to help the poor and bring about inclusive development will be fully protected
under the revised fiscal consolidation plan. As fiscal consolidation takes
place 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.
Our impressive record
during 2004-08 should serve as a constant reminder that with sound policies and
determination we have the capacity to achieve our goals. Government seeks the
support of all sections of the people in implementing the fiscal consolidation
plan as well as other measures to reform and strengthen the economy".
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