New Delhi: Finance Minister P. Chidambaram Wednesday said the government will not compromise on fiscal consolidation, and will contain fiscal deficit and bring it down to 3 percent of the gross domestic product (GDP) by the financial year 2016-17.
“At the top of the list is fiscal consolidation. There can be no compromise – and I speak for the government when I say there will be no compromise – on the decision to walk on the path of fiscal prudence and contain the fiscal deficit, step by step, year by year, until we reach the goal of 3 percent of GDP in 2016-17,” he said while speaking at the Delhi Economic Conclave 2013.
The fiscal deficit target for the current financial year ending in March 2014 is set at 4.8 percent of GDP.
“The current account deficit would also need close attention. India cannot finance a current account deficit of the order of $88 billion as we did in 2012-13. Nor can India afford to pay for import of gold in the order of $50 billion or more. Nor should India import coal when it has coal in abundance. Nor should India tie itself in policy knots and be forced to import goods and commodities that it has the capacity to manufacture or produce,” he added.
The finance minister said next on the list is tackling inflation.
“It is common knowledge that the government of the day will pay a price for high inflation, especially if inflation persists over a long period of time. The current high inflation – measured by the CPI or the WPI – is driven by high food prices, especially prices of fruit, vegetables, meat, fish, eggs and milk. Sometimes, pulses and edible oils also witness sharp spikes in prices,” he said.
Chidambaram added: “The answer to inflation, therefore, especially inflation in food articles, is to increase supplies and to radically transform the manner in which commodities and food articles are stored, transported, distributed and sold in the various markets, especially urban markets.”
He said there is also a need to deal wisely with harvesting and marketing and deal strictly with hoarding and profiteering. “Laws in this behalf are entirely in the domain of the state government. Two laws stand out: one is the Agricultural Produce Markets Act and the other the Essential Commodities Act.”
“The powers of notification and enforcement under these Acts are with the state governments, yet state governments are loathe to take action under these Acts. I think it is necessary to highlight the inaction of the state governments in this behalf, even while accepting that the central government must do all it can, within its powers, to moderate inflation,” the finance minister said.
He said the Goods and Services Tax, the Direct Taxes Code, the Insurance Laws Amendment Bill and the Uniform Financial Code are the game changers in the financial sector.
“Each one of them requires the building of a broad consensus. My experience has been that consensus is built after several months of hard work and then the consensus crumbles when it is hit by a seizure of political opportunism,” he said.