FM’s 5-year fiscal plan is message in a bottle to RBI

Finance minister P Chidambaram on Monday gave the Reserve Bank of India a less-than-subtle message that he dearly wants it to start cutting benchmark lending rates to boost economic growth. On a day the central bank in a quarterly macroeconomic review chose to remain cautious as inflation risks were high and saw space only "down the line" to respond more effectively to growth concerns, Chidambaram unveiled a five-year plan for the Centre as per which its fiscal deficit would come down to 3% of the GDP by 2016-17.

Devoid of details and concrete plans to cut subsidies — the oil subsidy alone is expected to be R1.6 lakh crore as against Rs 43,580 crore budgeted — the fiscal consolidation road map, however, failed to enthuse analysts.

In its half-yearly monetary policy review on Tuesday, the RBI is widely expected to hold key policy rates.

Chidambaram's plan involves spending cuts without compromising on programmes for the poor and entails what he called "fair and equitable" sharing of the burden of fiscal correction by all stakeholders. He promised to reduce fiscal deficit in 2012-13 to 5.3% (as against the budgeted 5.1% and 6% predicted by many analysts). That indeed necessitates more steps to boost revenue and cut spending.

"In our view, the measures announced will be insufficient to contain the fiscal deficit at 5.3% of GDP in FY13 due to higher subsidies and lower tax revenues," Nomura said in a statement.

The fiscal road map will need Parliament approval. In Budget 2012, Pranab Mukherjee, then finance minister, had pegged a fiscal deficit of 5.1% for the current fiscal and envisaged a 3.9% deficit in 2014-15.

Most economists FE spoke to, said although the road map is short on details, it still showed the government's seriousness about improving its financial health.

The minister said the government expects to realise the targeted Rs 30,000 crore from disinvestment and the Rs 1,64,614 crore total non-tax receipts that includes Rs 40,000 crore from telecom spectrum auction and dividend from state-run companies.

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