The government today unveiled a fiscal consolidation plan to sharply reduce fiscal deficit progressively, but without affecting any major cut in subsidy.
Finance Minister P Chidambaram said at a press conference today that fiscal deficit is estimated at 5.3 percent of GDP for the current year and the plan is to bring it down gradually to 3 percent by 2016-17.
The minister also expressed hope the Reserve Bank of India, which is reviewing its monetary policy tomorrow, would take note of the move.
The RBI has time and again asked the government to take corrective measures to arrive at a credible path to fiscal consolidation. The government has over the last month introduced a slew of reforms in its bid to avoid a sovereign rating downgrade by rating agencies and also to push the central bank to cut its policy rates.
Announcing the consolidation plan today, the minister, however, said the government will protect all its flagship programmes for the poor, indicating there are no plans to reduce the spending on schemes such as MGNREGA. He did not indicate any plan to decontrol fuel prices, which creates a big dent in the government’s finances.
The central bank has been urging the government to take steps to reduce fuel subsidy.
Chidambaram expected to realise the targeted revenue of Rs 40,000 crore from 2G spectrum auction and also Rs 30,000 crore from the government’s disinvestment of public sector units.
The government, however, does not expect any revenue from refarming of spectrum this year.
The cabinet has given approval disinvestment to 8 PSUs, including SAIL, NMDC, and MMTC, he said.
There is no proposal yet to sell stake held by Special Undertaking of Unit Trust of India (SUUTI), Chidambaram said.
He sees the current account deficit for the current year at 3.7 percent of GDP or $70.3 billion.
He expressed confidence that the CAD will be fully financed by capital inflows through foreign direct investments, foreign institutional investments and external commercial borrowings.