Finance Minister Pranab Mukherjee today said if the lingering sovereign debt crisis in some of the Eurozone economies is not contained, the global economy may fall into another crisis, which could have a debilitating impact on fiscal consolidation efforts.
"I hope the crisis in a small part of the Eurozone, where high sovereign debt is affecting their economies, will not further expand to the greater part and be confined to those four countries. If it happens, then there will be another crisis and another downward chain when the recovery is still very fragile," Mukherjee told a post-Budget meet organised by industry chamber Assocham here.
"I would not like to have a repetition of that situation in India by leaving a huge fiscal deficit; therefore, I had to resort to these measures (referring to the lower fiscal deficit target for next fiscal and the tax-raising measures announced in the Budget for the next fiscal)," he said.
Stating that "no country can go on borrowing indefinitely, particularly from the external sources," he said, "We do not need to go back to our past or the situation we witnessed in the beginning of the 90s and the late 80s. We have to bring in more fiscal discipline."
On the rationale behind his lower deficit projection, Mukherjee said, "Taking advantage of the buoyancy in revenue and in both direct and indirect taxes, I thought this is time to resort to a further tightening of the belt, so that fiscal expansion could be brought back to manageable limits. I have no hesitation to say that I am a bit conservative. But the type of situation that is emerging (warrants more measures at fiscal consolidation)."
The Union Budget for 2011-12 pegged the fiscal deficit at 4.6%, lower than 5.1% in the current fiscal. Thanks to an unexpected 3G spectrum haul, the government succeeded in reining in the fiscal deficit from an initial target of 5.6% to 5.1% in the current fiscal.
On the fiscal consolidation front, he said, "I must emphasise that increased expenditure in 2010-11 was a one-off event resulting from a better-than-anticipated non-tax revenues (from the auction of 3G spectrum)."
"We made a deliberate decision to expand expenditure by about Rs 50,000 crore in 2010-11 on critical infrastructure and social sectors and also to meet the expenditure on the subsidies. We are now making an equally deliberate decision on the fiscal consolidation," said Mukherjee.
Allaying fears in some quarters on the expenditure numbers in the Budget proposal, he said, "Let me point out that growth in total expenditure in 2011-12 is about 13% over the Budget estimates of 2010-11.
"It comprises over 18% growth in Plan spending and only 10% in non-Plan. In comparison to the revised estimates for 2010-11, growth in total expenditure for 2011-12 is about 3.5%."
Commenting on the market borrowing programme, the Finance Minister said that it will not suck out liquidity from the system.
"I have kept the net market borrowings at Rs 3.43 lakh crore for 2011-12, which is marginally lower in absolute terms than the Budget estimates of 2010-11. This should give the necessary space for growth in private investments. I am confident that the borrowing programme of the government, which will be finalised in consultation with the RBI, will be carried out in a non-disruptive manner," he said.
In the current fiscal, the government had borrowed Rs 4.47 lakh crore from the markets. Department of Economic Affairs Secretary R Gopalan had said that the government would borrow Rs 2.5 lakh crore, or over 60% of its budgeted Rs 4.17 lakh crore market borrowing for FY12, in the first half of the forthcoming fiscal.
"Our own requirement in absolute terms is the same, which means in percentage terms it is less. So there is free space for the private sector to access the market," Gopalan had said, adding, "Our experience is that private sector gets into the market in the second half and state governments also access the market. So the government usually access the market in first half."
