Finance Minister P. Chidambaram on Wednesday assured the investors that he has drawn red lines and the fiscal deficit will be below the 4.8 per cent mark in 2013-14.
“A number of measures have been taken... We are determined to go back to the path of fiscal consolidation... We have laid out a new path and I have said these are red lines. This will be never, never breached,” he said while addressing India Summit organised by UK-based magazine The Economist.
“Going forward in 2013-14, fiscal deficit will be contained below 4.8 per cent of the GDP”, he said.
Mr. Chidambaram had gone the whole hog to contain the fiscal deficit by compressing expenditure and making extra efforts to improve revenue collection.
As a result, the Government has been able to hold the fiscal deficit — the gap between expenditure and revenue — at 5.2 per cent of the GDP in the last fiscal as against the revised Budget estimates of 5.3 per cent.
After taking over the Finance portfolio in August last year, Mr. Chidambaram had unveiled a roadmap for fiscal consolidation to bring the fiscal deficit at the level of 3 per cent by 2016-17.
However, Mr. Chidambaram said that more important than controlling the fiscal deficit was to check the widening Current Account Deficit (CAD).
“CAD is indeed high... (it) is more worrying that fiscal deficit. In 2012-13, CAD is expected to be USD 90-94 billion. The satisfying aspect of this is that we have financed it completely without drawing down our reserves. There have been copious inflows,” he added.
Referring to the three tranches of fiscal stimulus that was given to the industry to cushion it against the impact of global slowdown of 2008, Chidambaram said the third instalment was “perhaps avoidable”.
The stimulus packages amounted to Rs 1.84 lakh crore or 3 per cent of GDP. Although the fiscal measures help the economy grow at over 8 per cent, it resulted in higher fiscal deficit as well as inflation.