FM says rise in deficit not a matter of concern

A possible rise in fiscal deficit will not be a matter of concern for the United Progressive Alliance (UPA) government as it is focused on stimulating the economy in this difficult time.

Announcing this in the Lok Sabha, Home Minister P Chidambaram said, “If fiscal deficit crosses 3 per cent of GDP, it is not a cause for concern. We had brought down the fiscal deficit to 2.5 per cent from 4.5 per cent.”

On Thursday, the first working day of Parliament, Chidambaram had to perform his new role as home minister, announcing a slew of security measures the outraged country had been waiting for since last month’s terror attack in Mumbai.

Within 24 hours, the Lok Sabha saw him switching gears to tackle another serious issue — the slowing of the economy. As Singh is now looking after the finance portfolio, Chidambaram and Minister of State of Finance Pawan Bansal today answered questions related to the ministry in the Lok Sabha.

At a time when industrial growth has recorded negative growth, the government today assured the Lok Sabha that stimulating the economy would be accorded highest priority.

As he has done in the past, Chidambaram referred to Nobel laureate Paul Krugman to drive home his point. Quoting Krugman, he said this was not the year to worry too much about fiscal gaps.

The fiscal deficit for the current financial year (2008-09) has been estimated at 2.5 per cent.

But when CPI(M) member Rupchand Pal suggested amending the fiscal responsilility law in the wake of the global meltdown, Chidambaram turned said it would not be “wise to amend the Fiscal Responsibility and Budget Management (FRBM) Act” and relax the financial discipline of the government. He said the government would inform the House if the FRBM targets were breached.

Meanwhile, in a written reply, MoS Finance Pawan Kumar Bansal claimed thatthe country has the potential to maintain a high growth rate in the long run as the saving and investment rates are robust.

He said the gross domestic savings have increased to 34.3 per cent of the gross domestic product in 2006-07 from a level of 31.8 per cent of the GDP in 2004-05. Gross domestic capital formation for the same period rose to 35.9 per cent of the GDP from 32.2 per cent in 2004-05.