New Delhi: Worried over high budget deficit derailing growth, Finance Minister P Chidambaram on Monday unveiled a five-year road map for fiscal consolidation to promote investments, contain inflation and take India to high growth trajectory.
The government, the Minister said, will continue efforts to restrict fiscal deficit in the current financial year to 5.3 percent of the Gross Domestic Product (GDP) and reduce it to 3 percent by 2016-17. The fiscal deficit was 5.8 percent in 2011-12.
"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", he said.
Economic growth slipped to nine-year low of 6.5 percent in 2011-12 and it is expected to fall further this fiscal.
Referring to fiscal consolidation in 2012-13, Chidambaram expressed the confidence that government would be able to raise Rs 30,000 crore from disinvestment and Rs 40,000 crore from sale of spectrum.
As regards the revenue targets, he said, "every effort will also be made to realise the revenue budgeted under tax receipts. 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.
The government had budgeted the fiscal deficit for 2012-13 at 5.1 percent. However, as per the consolidation roadmap, it is expected to be 5.3 percent of GDP.
Chidambaram said, "5.1 percent was very challenging. After looking at all the factors we think 5.3 percent is do-able and we intend to work hard and achieve that.
"This plan is necessary, this plan must be implemented and government is very serious about implementing this fiscal consolidation plan."
The roadmap follows the recommendation of the Vijay Kelkar-headed Committee which had suggested that the government should undertake reform initiatives, go ahead with disinvestments and reduce subsidies, without which fiscal deficit could shoot up to 6.1 percent in 2012-13.
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.
"A quick review of DTC Bill will be done. We are looking at the Bill that was introduced, at the standing committee's recommendations. We are also looking at current economic situation and therefore final version of bill that will be introduced in Parliament will reflect all these. By and large we will have to abide by Standing Committee recommendations," he said.
Chidambaram said the work is in progress on both the DTC and the Goods and Services Tax (GST).
While DTC will replace the archaic Income Tax laws, GST will subsume various levies and streamline the indirect tax regime.
On lowering government holdings in state-owned firms, he said the Disinvestment Department has already obtained Cabinet approval for stake sale in 8 PSUs -- HCL, NALCO, SAIL, RINL, BHEL, OIL, MMTC and NMDC.
Chidambaram said the government would rely on Aadhaar enabled direct cash transfers of subsidies to eliminate duplication or falsification.
He said that the slowdown in the world economy, lower growth in India, higher inflation, lower tax receipts and increased expenditures led to considerable fiscal stress in the 2011-12 financial year.
The fiscal deficit, the gap between overall expenditure and revenue, rose to 5.8 percent on GDP in 2011-12.
Chidambaram said that if immediate corrective steps were not taken then the economy could go into a cycle of low growth, high inflation and high deficit.
"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," he said.
Chidambaram, soon after assuming office in August, has ushered in a host of reform initiative. While the diesel price was hiked by over Rs 5 a litre from September 13, the foreign investment norms were liberalised for retail, pension, insurance, information and broadcasting sectors.
Chidambaram had in August, appointed a three member committee under the chairmanship of 13th Finance Commission headed Kelkar to suggest a roadmap for fiscal consolidation.
As per the roadmap given by the Committee, the Centre should aim to reduce the fiscal deficit to 4.6 percent and 3.9 percent by 2013-14 and 2014-15 respectively.