Plan expenditure may be axed to rein in fiscal deficit at 4.8%

Planning Commission deputy chairman Montek Singh Ahluwalia on Saturday said that the government is looking to trim plan expenditure this year to ensure that fiscal deficit is reined in at 4.8% of GDP.The move may, however, pull down GDP growth, which fell to a four-year low of 4.4 percent in the quarter ended June 2013.

Speaking to newspersons, Ahluwalia, however, clarified the government had not yet mooted such a cut. “We have not yet been asked to lower plan expenditure but we might consider it if it is necessary to contain the fiscal deficit. We will be reviewing the numbers in November,” he said.

Finance Minister P Chidambaram had earlier also said the target of reining in fiscal deficit at 4.8 percent of GDP this financial year was a red line that wouldn’t be breached.

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Chidambaram slashed plan spending by nearly Rs 92,000 crore to stick to the revised fiscal deficit target of 5.2% during 2012-13.

India’s fiscal deficit last year was contained at 4.9% of GDP.

The estimated plan expenditure for FY14 is R5.55 lakh crore. Thist is 29.4% higher than the revised estimate (RE) for FY13 of Rs 4.29 lakh crore, but it is barely 6% higher than the budget estimate.

Ahluwalia also ruled out approaching the International Monetary Fund (IMF) for assistance, saying the economic situation has not reached a point where outside help is warranted. He said the RBI’s forex reserves are adequate to manage the difficult situation. India’s foreign exchange reserves were up at $278.602 billion as of August 9. “Our current economic situation does not warrant it. I do not anticipate it in the near future,” Ahluwalia said, adding, “India’s reserves are comfortable.”

Replying to questions, Ahluwalia said there will be no “real improvement” in the Current Account Deficit (CAD) till the end of the second quarter (July-September) this year.

On the volatility in the Indian currency, Ahluwalia said depreciation can be good for the economy to some extent as this will help to increase the country’s export competitiveness and discourage imports.

Pointing towards weak performance by the manufacturing sector, Ahluwalia said high levels of investment is required to give the economy an stimulus and the government has set up the Cabinet Committee on Investment to thrust it.

“I think manufacturing has put in a very weak performance. It is high levels of investment that give us stimulus for a production of capital goods and its true that investment has been down.

“Our analysis has been that one of the reasons why investment is down, is that there are lot of ongoing projects that were held up for a number of regulatory and other clearances. That’s why the cabinet committee on investment was set up.”

Ahluwalia said the economic growth has to be felt in the second half of the year, adding, the first quarter has shown a pretty weak performance.