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Policy action needed to contain fiscal deficit: Rangarajan

He says fiscal deficit may push interest rates high & there will be more government borrowings

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Policy action is "very much" needed to reduce petroleum subsidies and contain contain at budgeted level of 5.1% of in this financial year, Prime Minister's Economic Advisory Council Chairman C has said.

"We should take all the steps that are necessary to ensure that fiscal deficit is at the targeted level of 5.1%. This is going to be very difficult unless we are in a position to contain subsidies. To contain subsidies, particularly petroleum subsidies, and fiscal deficit at 5.1%, policy action is very much required," he said.

Delivering a speech at a function here yesterday, he said higher levels of fiscal deficit may push interest rates high there will be more government borrowings.

"The situation is likely to be a shade better during the current fiscal,"  he said, adding that the the country has the potential to grow at 8 to 9%.

Finance Minister P Chidambaram had asked noted experts Vijay Kelkar, Indira Rajaraman and Sanjiv Misra to assist "the government in formulating the path of fiscal consolidation. It is expected that the work will be completed in a few weeks.

The Finance Minster had also said that "the burden of fiscal correction must be shared, fairly .... By different classes of stakeholders... Adjustments must be made both on the revenue side and the expenditure side."

The government has budgeted 5.1% of fiscal deficit for 2012-13.

The Centre's fiscal deficit had ballooned to 5.76% of GDP in the last fiscal due to high fuel subsidy outgo. The government has not been able to decontrol diesel prices even after taking in-principle decision.

For the April-June period, the fiscal deficit rose to Rs 1.9 lakh crore, or 37.1% of the 2012-13 target.

The Centre hopes to bring down the deficit to 5.1% of GDP in the current fiscal but the task seems difficult in view of rising oil, food and fertiliser subsidy bills.

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