The Indian finance minister who has spearheaded recent economic reforms has announced new targets to cut the budget deficit to 3 per cent of the economy by 2017 from a predicted 5.3 per cent in the current year.
Palaniappan Chidambaram on Monday unveiled the 3 per cent goal – which is identical to the eurozone’s targeted maximum deficit for national budgets – after a Sunday cabinet reshuffle left him in charge at the finance ministry to push ahead with reforms.
“We think that we have a do-able fiscal consolidation plan,” he said, admitting that the intended deficit for the 2012-13 fiscal year would exceed the original target of 5.1 per cent of gross domestic product. “We will do all that is required to be done to achieve the plan . . . There is no option.”
Mr Chidambaram said all the main poverty-relief programmes would be “fully protected”, but would not be drawn on whether the government planned further cuts to controversial diesel and cooking gas subsidies.
The finance minister rejected the suggestion that the Congress-led coalition would have to call a general election before the scheduled time in the first half of 2014 and would therefore struggle to impose fiscal discipline.
The plan sees the budget deficit falling steadily to 4.8 per cent of GDP next year, 4.2 per cent in 2014-15, 3.6 per cent in 2015-16 and 3 per cent in 2016-17.
Economists and government officials say the plan will be hard to implement, given that some predict this year’s deficit is already heading towards 6 per cent of GDP or more – a figure described by Mr Chidambaram as “totally unacceptable” because of the grave consequences it would have for the Indian economy.
Mr Chidambaram did not outline how India would achieve the targets, but reiterated plans to privatise industrial companies, improve tax collection and move to a more effective goods and services tax.
Speaking a day ahead of the Reserve Bank of India’s quarterly policy review, Mr Chidambaram said he hoped the central bank would take note of the fiscal plan.
Business leaders are hoping for a cut in interest rates to stimulate faltering economic growth, but the RBI remains wary of high inflation.
India’s current account deficit, the finance minister said, was projected to fall slightly to $70.3bn or 3.7 per cent of GDP in the current year, and was expected to be “fully financed” by foreign direct investment, foreign portfolio investment and external commercial borrowings.