Won't revise deficit targets: Basu

India’s chief economic advisor Kaushik Basu on Thursday said achieving the budgetary targets for 2011-12 were challenging but the government was working towards meeting them and would not revise them as of now.

“The fiscal deficit target is challenging but we are very serious about it, and so we are looking at all aspects of the Budget to meet the target. We have three very important targets — fiscal deficit at 4.6 per cent, revenue deficit at 3.4 per cent and the total borrowing at Rs 3.4 lakh crore. We want to hold on to those and, thus, we are still very determined and haven’t given up on them yet,” said Basu.

The Reserve Bank of India (RBI), in its first-quarter review of monetary and credit policy, said the large fiscal deficit had been a key source of demand pressures. “Fiscal consolidation is, therefore, critical to managing inflation,” said RBI. The central bank also pointed out that the government also needed to focus on the quality of expenditure to sustain the fiscal consolidation process.

On the growth front, however, there was a likelihood of downward revision. Basu said when the growth estimate for 2011-12 would be revised in August-September, it would be below nine per cent that was projected earlier. “It will be revised downwards from nine per cent very likely, but I genuinely believe there are lot of underlying strengths in the Indian economy, from investments to export sector and foreign direct investments which is showing a clear sign of reviving this year,” said Basu.

He added that on these grounds his estimate would probably be more optimistic than that of RBI, which is at eight per cent for 2011-12.

While growth had slowed down in the short term, the medium- to long-term picture in India looked optimistic, as the investments and savings rate were still holding strong, he said.

He expects inflation to end up between 6.5 and 7.5 per cent by March 2012. “We expect inflation to remain roughly between 9 and 10 per cent up to November-December and then go down from December onwards,” said Basu. He added that there could be some pressure on food prices in January-February. The chief economic advisor also pointed out that ‘inflation targeting’ could be worth the effort at a time when RBI was trying to bring it down.

RBI revised its year-end inflation projection from six to seven per cent in its first-quarter policy review.