"Containing fiscal deficit alone will restore government’s credibility"

Just a day after Tata group chairman Ratan Tata tweeted in defence of Prime Minister Manmohan Singh, while seeking action to restore the credibility of the government, Prime Minister’s Economic Advisory Council (PMEAC) chairman C. Rangarajan spelt out what that action could be, and called for decontrol of diesel prices and foreign investment in multi-brand retail.

“I do hope action in terms of changing prices of petroleum products, more particularly diesel, will come through as early as possible. That is extremely important,” said Dr. Rangarajan, who is a key adviser to the Prime Minister, besides Planning Commission Deputy Chairman Montek Singh Ahluwalia, ever since Dr. Singh took charge of the Finance portfolio.

Speaking at a conference on the country’s economic policy here, the PMEAC chief said that as the days of ‘big-bang’ reforms are done with, the government could move forward regarding approval to foreign direct investment in retail and civil aviation, through executive orders outside Parliament.

“I don’t think that it is necessary or there is a case for big-bang reform. So, I would say that we really need to look at foreign direct investment, and foreign direct investment in retail and civil aviation can possibly be done without going to Parliament. It can be done by executive decisions,” Dr. Rangarajan said, while pointing out that political consensus has to be built up “slowly,” for hiking the foreign direct investment limit in sectors such as insurance and pension.

Mainly owing to opposition from its own coalition partners, the government has neither succeeded in raising the foreign direct investment ceiling in insurance and pension sectors to 49 per cent from the existing 26 per cent, nor has it been able to throw open multi-brand retail business to foreign players.

More importantly, the PMEAC chief felt that decontrol of diesel prices was essential to contain the fiscal deficit during 2012-13 at the budgeted level (5.1 per cent of the GDP) through administrative measures, as this step alone would restore the government’s credibility. “I strongly feel we need to contain [the] fiscal deficit. That is the only way to maintain credibility of the government,” he said.

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