Speaking at a seminar on `managing the fiscal deficit' organised by Assocham in the capital, Ahluwalia stressed that such sales should be open to the foreign investors. "The divestment process can be hastened in companies like Maruti where we do not have a majority stake and the funds raised can be used for reducing the debt," he said.

This kind of change cannot be done in a fragmented manner, it has to come in a big way, he said. There was need to build a consensus for a phased programme of divestment in public sector, he added. "There was, however, a lack of consensus even among academicians and the general feeling was that offloading of public assets was not the right thing," he said.

Ahluwalia also stressed on the need to link small savings interest ratewith inflation. "No change in interest rate despite fluctuations in inflation makes the whole process unrealistic. Linking of interest rate with inflation would facilitate better fiscal management," he said.

Lamenting the states for fiscal profligacy is erroneous, pointed out Ahluwalia. "The better way to deal with fiscal deficit would be to make the resource accrual conditional so that performance of the state government can be accounted for providing further resources," he said.

"Devolution of funds to states should be through one channel only, and a composite body including finance commission and planning commission should be formed," he said.

At present states were being provided funds through multiple channels like planning commission and finance commission, he pointed adding the financial picture presented to the states to the two bodies were very different.

Referring to recent discussions on use of Article 292 of the constitution to put a ceiling on government borrowings, Ahluwalia said, "wehave had wide ranging discussions on this and found that it is practically very difficult. Moreover, the cap on debt will not apply to borrowing on public account."

He added that in the present situation also the Parliament clears a budget which fixes the amount of expenditure a government can make.

However, in view of supplementary demands during the year the estimates were revised and finally the actual figure was even more higher, said Ahluwalia.

Similarly, despite a cap on government borrowing, in case of a revenue shortfall, the government would have no alternative but to go back to parliament for an upward revision in the limit, Montek said. "It is still desirable as it would at least result in a debate for enhancement of expenditure and ultimately borrowing, though not automatic control," he said.

Another way to reduce fiscal deficit was to downsize the government, he said adding a consensus needed to be built for the same. Referring to the burden put by fifth pay commission recommendations, hesaid the government had given much more than what the commission had recommended. Moreover, the recommendation about downsizing 30 per cent of the government staff had not been implemented.

Referring to demands about taxing agricultural income, he said "the idea is most inappropriate and the consequences will be disastrous." A better alternative would be to rationalise the taxes on agricultural produce and also charge the sector for various services like electricity and water, he suggested.