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FM guns for 3% Fiscal Deficit, Divestment & 2G auction

, October 29, 2012, 0 Comments

fiscal-deficitFinance Minister – P. Chidambaram’s take on Fiscal consolidation, Divestment, 2G auction, Inflation management, Current account deficit (CAD), key legislation such as Direct tax Code (DTC).

He unveiled a five-year roadmap for fiscal consolidation. The road map aims at cutting fiscal deficit to 3% by the year 2017.

Besides fiscal deficit FM aims to promote investments, contain inflation and take India to high growth trajectory. All of which UPA II has failed to achieve till date.

Due to combination of various factors India’s Economic growth slipped to a nine-year low of 6.5 per cent in 2011-12 and it seems that there will not be any respite coming soon.

As fiscal consolidation takes place and investors’ confidence increases, it is expected that the economy will return to the path of high investment, higher growth, lower inflation and long-term sustainability

Betting big on Divestment and 2G auction, in order to control fiscal situation FM expressed the confidence that the 30,000 cr can be mobilised through divestment and Rs 40,000 cr from sale of spectrum.

Last year government had missed divestment target and even got criticized for the manner in which ONGC’s divestment was handled.

Besides divestment and auction, Government is expected to contain and economise on expenditure, both on the Plan and non-Plan side.

Mr. Chidambaram said and we quote “While funds will be made available for essential expenditure, especially capital expenditure, every effort will be made to avoid parking or idling of funds”.

The government had budgeted the fiscal deficit for 2012-13 at 5.1 per cent. However, it seems there will be slippage and it would reach 5.3 per cent of GDP.

Commenting on Current account Deficit (CAD) he said the government is determined to address the twin challenges of current account deficit (CAD) and fiscal deficit.

CAD is expected to come down to $70.3 billion or 3.7 per cent of GDP in the current fiscal, from $78.2 billion or 4.2 per cent in 2011-12.

On policy reform and pending key legislation front he said “A quick review of DTC Bill will be done. We are looking at the Bill that was introduced, at the standing committee’s recommendations. By and large we will have to abide by the Standing Committee recommendations.”

Today’s remarks on fiscal consolidation, Current Account Deficit (CAD), Inflation and expenditure management holds significance as tomorrow RBI will review its monetary policy and it is widely expected that RBI will chose Inflation over Growth and will not lower lending rate, however it may tinker CRR.