Statement of the Union Finance Minister Shri P. Chidambaram on Fiscal Roadmap and Consolidation
Press release, dated 29-10-2012
Please find below the text of the Statement of the
Union Finance Minister Shri P. Chidambaram on Fiscal Roadmap and
Consolidation made here today by him in a Press Conference:
"Shortly after I assumed office, I issued a
statement on August 6, 2012 outlining the steps that would need to be
taken to meet the challenges that face the Indian economy. At the top of
the list was the need for fiscal consolidation. I had referred to the
appointment of a Committee chaired by Dr. Vijay Kelkar to assist the
Government in formulating a path of fiscal consolidation. The
Committee's report was put on the website a few weeks ago.
The Economic Slowdown
In 2011-12, the slowdown in the world economy, lower
growth in India, higher inflation, lower tax receipts and increased
expenditure (including subsidies) led to considerable fiscal stress. At
the end of the year, the fiscal deficit was at 5.8 per cent of GDP.
Government recognised that, if immediate corrective steps were not
taken, the economy may go into a cycle of low growth, high inflation and
high deficit. That would be unacceptable, given the need to generate
jobs and incomes for a large population, most of whom are young.
Therefore, on behalf of the Government, I reiterated our commitment to
bring the economy back on the high growth trajectory. Towards this end,
some difficult but crucial decisions were taken recently. It is a
matter of satisfaction that, despite the additional burden on certain
sections of the people, by and large, the people have understood the
imperative need for such difficult decisions.
The Report of the Kelkar Committee
The Kelkar Committee has cautioned us that a
business-as-usual scenario for the current year may lead to the fiscal
deficit rising to 6.1 per cent of GDP. This would have grave
consequences for the economy is, therefore, totally unacceptable. The
Committee has recommended a number of reform measures in taxation,
disinvestment and expenditure. On the taxation side, the Committee has
strongly advocated a transition to the Goods and Services Tax (GST) and a
quick review of the Direct Taxes Code (DTC) before its introduction and
passing in Parliament. Besides, the Committee has recommended
administrative measures to improve tax collection. On disinvestment,
the Committee has suggested a number of new models for disinvestment and
has also urged Government to disinvest its residual stake in some
companies that were privatised earlier. On the expenditure side, the
Committee has suggested rationalisation of schemes and strict control
and monitoring of expenditure. These recommendations are wholesome and
have been accepted by the Government.
The Department of Revenue and the Department of
Expenditure have initiated action on the recommendations of the
Committee. The Department of Disinvestment has obtained approval of the
Cabinet for disinvestment in Hindustan Copper Ltd., NALCO, SAIL, RINL,
BHEL, OIL, MMTC and NMDC. Government expects to realise the budgeted
receipts under 'disinvestment' and 'non-tax receipts'. Every effort
will also be made to realise the revenues budgeted under 'tax receipts'.
Government also expects to be able to contain and economise on
expenditure, both on the Plan and the non-Plan side. While funds will
be made available for essential expenditure, especially capital
expenditure, every effort will be made to avoid parking or idling of
funds. As regards subsidies, Government will also increasingly rely on
Aadhaar-enabled direct cash transfers of merit subsidies to eliminate
duplication or falsification.
The Twin Deficits – CAD and FD
Government is determined to address the twin challenges
of current account deficit (CAD) and fiscal deficit (FD). During
2011-12, the CAD increased to USD 78.2 billion or 4.2 per cent of GDP.
The Department of Economic Affairs, in consultation with the RBI, has
projected a CAD of USD 70.3 billion in 2012-13 or 3.7 per cent of GDP.
Any moderation in CAD would be welcome. Government is confident that
the CAD will be fully financed by capital inflows, and expects that a
substantial part of it will be in the form of Foreign Direct Investments
(FDI), Foreign Institutional Investments (FII) and External Commercial
Borrowings (ECB).
The Fiscal Consolidation Plan
As regards the fiscal deficit (FD), taking into account
the steps outlined above and other steps that are being implemented or
contemplated, Government has decided to adopt the following plan of
fiscal consolidation during the period of the 12th Plan, i.e. from 2012-13 to 2016-17.
| Year | Fiscal Deficit (%) | |
| 2012-13 | 5.3 | |
| 2013-14 | 4.8 | |
| 2014-15 | 4.2 | |
| 2015-16 | 3.6 | |
| 2016-17 | 3.0 |
The burden of fiscal correction must be shared, fairly
and equitably, by different classes of stakeholders. However, as I said
on August 6, 2012, "the poor must be protected and others must bear
their fair share of the burden." In particular, I would like to
emphasise that all the flagship programmes designed to help the poor and
bring about inclusive development will be fully protected under the
revised fiscal consolidation plan. 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.
Our impressive record during 2004-08 should serve as a
constant reminder that with sound policies and determination we have the
capacity to achieve our goals. Government seeks the support of all
sections of the people in implementing the fiscal consolidation plan as
well as other measures to reform and strengthen the economy".
