Fiscal deficit will be less than target, says Chawla

Finance Secretary Ashok Chawla has said that the government would be able to end the current financial year with a fiscal deficit of less than the Budget target of 5.5 per cent of gross domestic product, or GDP. This would be possible because of buoyancy in tax collections and better-than-expected revenue from the sale of spectrum for high-speed telephony and broadband services.

In an interview with Business Standard, eight weeks before the Union Budget for 2010-11 is due to be presented on February 28, Chawla said reducing the fiscal deficit to 4.8 per cent of GDP in 2011-12 would pose no problem because of revenue buoyancy and a healthy rate of economic growth.

The finance secretary said meeting the target would not be difficult in 2011-12 because the targeted fall of 70 basis points in fiscal deficit next year was not as steep as it was in the current year at 130 basis points.

The fiscal deficit fell 39.08 per cent to Rs 1,86,522 crore in April-November (48.9 per cent of the Budget estimate), compared with Rs 3,06,221 in the same period last year, as the government’s revenue receipts soared. This year, the government got non-tax revenue of Rs 1,06,000 crore from the auction of 3G spectrum and broadband wireless access, against a budgeted amount of Rs 35,000 crore.

In his interview, the finance secretary spoke on a wide range of issues, including the government’s disinvestment plan, approach to subsidies, dependence on foreign institutional investors and oil sector reforms.

The key thrust of the Budget for 2011-12, Chawla said, would continue to be to unshackle the economy, achieve higher growth, addressing weaknesses in the real sectors and strengthening the financial sector and its regulatory architecture.

On inflation, however, Chawla admitted that the options before the government were limited, as it was driven by food prices and that it could not do much beyond the measures it has already taken to cool prices. He said an aggressive monetary policy could not be an answer to inflation, as it would hurt growth.

“You can use very aggressive monetary policy but then you strive for growth and employment. In that sense the policy space to tackle this kind of inflation is certainly somewhat limited,” he said, adding inflation was expected to remain between 6 per cent and 6.5 per cent at end-March 2011.

Despite a high statistical base of last year, wholesale food inflation for the week ended December 18 had touched a 10-week high of 14.44 per cent, as prices of vegetables, particularly onion, soared.

The finance secretary also expressed concerns about widening current account deficit, but said the government should be able to contain it at 3-3.5 per cent of the GDP by March 2011.

India's current account deficit has widened to $15.8 billion in the September quarter, compared with $9.2 billion deficit in the same period year ago. It increased to 4.1 per cent of GDP in the September quarter, compared with 3.2 per cent in the previous quarter.