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Difficult to achieve fiscal deficit target: Rangarajan

Press Trust of India  |  New Delhi 

C Rangarajan

Prime Minister's Economic Advisory Council (PMEAC) Chairman today said the government was likely to miss the fiscal deficit target of 4.6% for the current fiscal as growth was expected to moderate.

"In the current year, the budgeted fiscal deficit is 4.6% [of GDP]. It is going to be difficult to achieve this. All the numbers do not gel well," he said, while delivering lecture at golden jubilee celebration of Indian Economic Service here.

"But I think it should be one of efforts to ensure that fiscal deficit is in the lines of what was estimated," he said.

The economic growth was earlier estimated at 8.2% for the current fiscal.

Despite a stronger agricultural growth than what was estimated earlier, he said the economy was expected to grow about 8% during the current fiscal as there were serious concerns.

"Therefore, taking all these factors into account, I believe the growth rate of the economy can be close to 8% a year," he said.

He said the potential growth rate of was 9% given the saving and investment rate.

Highlighting the challenges, Rangaranjan said, "I believe there are short-term concerns and medium-term constraints which will come in the way of achieving 9% growth."

There are three short-term constraints -- one is inflation, the second is balance of payment and the third area is fiscal consolidation.

On rate of price rise, he said, "I believe even if inflation is triggered by supply side constraint monetary policy has important role to play."

When food inflation persist for some time then it gets generalised, he said, "In fact today the non-food manufacturing index exceed 7.5%. Therefore, we should be using monetary policy to tame inflationary expectations."

Defending the number of rate hikes effected by the Reserve Bank, he said, "We should use monetary policy in way that demand preference is brought down."

Since March 2010, the central bank has raised policy rate 12 times to tame inflation.

On the Current Account Deficit (CAD), he said, "I don't think that by taking both imports and exports of goods and services taken together we might exceed 2.5% of of the CAD this year."

First Published: Thu, September 29 2011. 19:21 IST