Govt needs to take hard decisions post state polls: PMEAC

The Prime Minister's Economic Advisory Council (PMEAC) today suggested that the government take hard decisions like linking prices of petroleum products to global rates in 2012-13 as there will be no political compulsions after Assembly polls in five states are over on March 3.

"I think during the course of next year there may not be any major electoral compulsions. I think most of the elections will be over by that time," PMEAC Chairman C Rangarajan said.

"Some hard decisions with respect to petroleum subsidies will have to be taken...," he said when asked whether the government can work its way back on to the fiscal consolidation path.

He said the government faced difficulty in reducing subsidies on petroleum products and raising prices of diesel amid high inflation.

"When inflation was running at a level in excess of 9% for most of the year, it was difficult to adjust the petroleum subsidies, reduce the petroleum subsidies and raise the diesel prices, for example. But I think that difficulty will not be there next year," Rangarajan said.

Punjab, Uttarakhand, Uttar Pradesh, Goa and Manipur go to polls between January 30 and March 3.

The PMEAC chief hoped inflation will slow down by March this year, which will give some space for the government to take action in terms of cutting subsidies.

Terming the 4.6% fiscal deficit target for the fiscal as a "a bit ambitious", he said the government is likely to adopt a path of fiscal consolidation in 2012-13.

"I think next year we should really try and see that the fiscal consolidation programme is on line... Fiscal consolidation is important for sustaining the high rate of growth over a long period of time," he said, adding that the fiscal deficit may overshoot the Budget target by about 1%.

"I do not think that the fiscal deficit will be higher by more than 1% of the GDP over the budgeted level. That I think will be the counter limit; it could be even less than that," Rangarajan added.

To a query on monetary policy, he said: "I believe the RBI will begin to act when inflation shows definite signs of decline. As soon as the December numbers are available to the Reserve Bank, they will probably take action."