A day after Finance Minister P Chidambaram prescribed some bitter medicine for fiscal consolidation, Prime Minister Manmohan Singh today gave out hints at raising prices of petroleum products and electricity. He expressed his government’s seriousness to meet fiscal roadmap for five years beginning 2012-13.
The Budget for 2013-14 may contain provisions to cut the Centre's fiscal deficit to 4.8 per cent of GDP next fiscal and then to 3 per cent by 2016-17 against 5.3 per cent pegged for the current financial year, indicated chief economic adviser Raghuram Rajan as he laid stress on containing the government expenditure.
At an annual general meeting of the Federation of Indian Chambers of Commerce and Industry (FICCI), differences cropped up between the Prime Minister and India Inc. over the land acquisition bill, cleared by the Cabinet earlier this week.
The Prime Minister also reminded the industry of affirmative action, which he had spelt out five years ago at the AGM of another industry chamber--the Cofederation of Indian Industry (CII).
He asserted that the steps recently taken by the government-- be it on 51 per cent FDI in multi-brand retail or setting up of the Cabinet Committee on Investment are just the beginning of the process to revert the economy on a path to 8-9 per cent.
Pointing out that the subsidy bill is hindering the govrenment's development efforts, Singh said,"Under pricing of energy, particularly electricity and petroleum products, has greatly affected the resources available for investments in infrastructure and social development," Singh said in his inaugural speech.
He said subsidies on oil alone are more than what the government spends on health and education put together. "We need to address these issues even as we ensure that the poor and the vulnerable are protected."
The finance minister has come out with a five-year roadmap to reduce fiscal deficit to 5.3 per cent this financial year from 5.76 per cent in 2011-12, and further to three per cent by 2016-17.
"The Government is serious about moving in this direction. Our action in correcting distortions in energy pricing, reducing diesel and LPG subsidies was aimed to achieve this objective," the Prime Minister said.
The government had raised diesel prices by Rs five a litre and capped subsidised LPG cylinders at six a family a year.
The Budget had estimated the Centre's fiscal deficit at 5.1 per cent of GDP. Till October of the current financial year, 68 per cent of even the revised target was covered.
As the government struggles to meet even the revised target of fiscal deficit, the Prime Minister said the disinvestment process would be speeded up.
On the sidelines of the FICCI AGM, the chief economic adviser told reporters," We are going to do our best to achieve 5.3 per cent (target for fiscal deficit)."
When asked about the bitter medicine that the Finance Minister talked about yesterday, Rajan said the government has to be careful about everything that it spends on. "That is how we are going to get back on fiscal track, being careful (on expenditure). “
He said the Finance Minister has already laid out very clearly the fiscal path, and that is something that can restore investor confidence. "So, we move along that path. And the budget will be the next important step along that path."
Yesterday the Finance Minister had warned that India faces a possibility of downgrading of its sovereign rating to junk if fiscal consolidation does not happen and prescribed some “bitter” medicine to contain the Centre’s fiscal deficit.
Both Standard & Poor's and Fitch Ratings had warned of downgrading India's lowest investment grade rating to junk.
At the AGM, outgoing FICCI President R V Kanoria said the Land Acquisition Bill should not be passed in its present form and be comprehensively reviewed. Kanoria said all implications of the bill have not been thought through.
The Prime Minister, however, defended the bill. "The Land Acquisition Bill, recently approved by the Cabinet, with all the misgivings that Mr Kanoria has expressed, will soon usher in a more fair and transparent regime for land acquisition," Singh said.
Later, former FICCI President Harshpati Singhania said the Bill is not going to help make industry competitive.
