The government was committed to moving in the direction of fiscal consolidation as laid out by new Finance Minister P Chidambaram, said Arvind Mayaram, economic affairs secretary.
Speaking to reporters after the Reserve Bank of India’s (RBI) board meeting here, Mayaram said an action plan would be unfolded on this issue very soon. Mayaram was inducted in the RBI board after R Gopalan retired last month.
“The finance minister has clearly laid out the road map, which also includes fiscal consolidation, and the government is fully committed to moving in that direction. Of course, the details have to be worked out. We intend to follow it up very quickly. It’s too early to say, just wait for the action plan to unfold, based on what the finance minister said, and I am quite confident that you would see changes in coming months,” he said.
In the recent past, RBI has also emphasised the importance of containing fiscal deficit, which it says, is key for stable and benign inflation. In particular, the central bank highlighted the need to contain subsidies within two per cent of the gross domestic product (GDP) and freeing of energy prices. Though RBI reduced its lending rate in April, it decided to hold it in subsequent policy meetings as inflation, at seven per cent, is above the RBI’s tolerance level of five per cent.
“Fiscal deficit and overall slowdown in the world economy that also impacts our current account deficit are the risks to growth. But the fundamentals of the Indian economy are very strong and we believe we have the required resilience to overcome these constraints,” Mayaram said.
In its year’s Budget, the government projected a fiscal deficit of Rs 5. 14 lakh crore or 5.1 per cent of GDP.
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Chidambaram had earlier this week said the government planned to unveil a path of fiscal consolidation shortly.
“I would like to make it clear that the burden of fiscal correction must be shared, fairly and equitably, by different classes of stakeholders.”
The poor must be protected and others must bear their fair share of the burden. Obviously, adjustments must be made both on the revenue side and on the expenditure side," he had said after taking over as the finance minister.
Chidambaram, who shifted from home ministry to finance ministry last week, has appointed a committee headed by former Finance Commission chairman Vijay Kelkar to help the government to formulate the path of fiscal consolidation.