FM charts new fiscal road map

[admin]

Projects 3% Deficit In 5 Yrs, Nudges RBI To Cut Rate In Today’s Policy Review
TIMES NEWS NETWORK

New Delhi:The government on Monday admitted to fiscal slippage this year, while unveiling a new fiscal consolidation road map that aims to control spending and raise more tax and disinvestment receipts in what was seen as a last ditch effort to prod RBI to cut key policy rates.
Apart from lower inflation, the central bank, which is due to announce its half-yearly review of the monetary policy on Tuesday, had earlier said fiscal correction was a key element that it was watching before effecting changes in the monetary stance.
Although the two-page statement that Chidambaram read out at a press conference was short on specifics, the minister said the plan is to cut fiscal deficit to 3% of GDP by 2016-17 from the revised target of 5.3% for the current fiscal.
The government had budgeted for a fiscal deficit of 5.1% of GDP at the start of the year but Chidambaram said it appeared challenging. “I think part of my job is to tell the truth as I see it. I think 5.1% is challenging, 5.3% is doable, so we intend to work hard and achieve 5.3 %,” he said.
Asked about the possibility of a rate cut following the fiscal consolidation plan, the minister said: “I am making the statement so that everybody acknowledges the steps which we are taking. And also acknowledges the government is determined to bring about fiscal consolidation. And I sincerely hope that everybody will read the statement and take note of that.” His officials were, however, more upfront with economic affairs secretary Arvind Mayaram saying the ball was in RBI’s court.
“The government has decided on what it has to do, now they have to take a call.”
Times View: Specifics missing
The finance ministry’s move to unveil a roadmap for fiscal consolidation may be laudable but it lacks in specifics. The intention of reducing the fiscal deficit to 3% by 2017 is good but such numbers have been bandied about in the past. In the absence of specifics, the talk now might be interpreted as an attempt to induce the RBI to cut interest rates. The central bank has so far resisted cutting rates in view of inflationary pressures in the economy. So, it will have to be seen whether the talk of fiscal consolidation will impress RBI.