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A day before the Reserve Bank of India's half-yearly monetary policy review, Finance Minister P Chidambaram Monday pledged that the UPA government would cut its fiscal deficit to an ambitious 5.3 per cent during 2012-13 from 5.8 per cent during the previous fiscal, and further reduce it to 4.8 per cent in 2013-14 despite the compulsions of general elections due that year.
In an apparent attempt to make the goalposts appear credible to the central bank, Chidambaram also promised to amend the Fiscal Responsibility and Budget Management Act to make the targets inviolate. "Whatever corrections have to be made to the Act will be done," he said at a news conference after announcing a five-year fiscal roadmap and consolidation plan.
The government has been pushing the RBI to cut interest rates which it believes will boost growth as banks will find more room to lend. But the RBI has been stressing that the government needs to do more on the fiscal side and pull back inflation before it can ease rates. However, the RBI, which had cut rates by 50 basis points in April, sounded cautiously optimistic on the eve of its policy statement.
"Policy actions announced by the government since September 2012 should be seen as major initiatives...As macro-risks from inflation and twin deficits recede further, that could yield space down the line for monetary policy to respond to growth concerns," the RBI said in its macro-economic and monetary development review for the July-September quarter.
Chidambaram, however, declined to qualify his announcement as something the RBI should follow through. "I am making the statement so that everybody in India acknowledges the steps which we are taking. And also acknowledge the government is determined to bring about fiscal consolidation. I sincerely hope that everybody will read the statement and take note of that," he said.
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