Falling global crude prices would help government achieve fiscal deficit target of 4.1 per cent of GDP in this fiscal but it needs to curb subsidies for containing the deficit in coming years, former chief economic adviser Arvind Virmani said today.
"There are huge gains from fall in crude oil prices and as inflation is also going down, it is going to have very positive effect (on reducing fiscal deficit)," Virmani said at an event organised by FICCI.
"I don't think it is difficult to achieve 4.1 per cent fiscal deficit target but the government would need to curb the subsidies in the medium run," he said.
For 2014-15, fiscal deficit - gap between government expenditure and revenue - has been pegged at Rs 5.31 lakh crore or 4.1 per cent of GDP.
Fiscal deficit has already touched 82.6 per cent of the Budget Estimates for 2014-15 to cross Rs 4.38 lakh crore at the end of September. During the same period of the 2013-14 fiscal, the deficit was at 76 per cent of the Budget Estimate.
Brent crude has fallen to a four-year low of USD 79.86 per barrel. Brent has lost almost 30 per cent since its June peak amid speculation that global supply is outpacing demand.
Government today increased excise duty on petrol and diesel by Rs 1.50 a litre which would boost its revenue by about Rs 13,000 crore on an annual basis and help contain budget deficit.
On the rising Non Performing Assets (NPAs) or bad loans, Virmani said, "The best thing in my view to sell these .. To the banks the government gave licences recently."
Speaking at the same occasion, Columbia University professor Arvind Panagariya made a case for facilitating mergers or closure of banks in case they cannot be revived.
"Some of the banks which are not so weak, consolidate those banks. Right now we have got this big imbalance, one big bank called State Bank of India and then lots of other banks which are not even the half of the SBI's size. So you need few more big players in the market," Panagariya said.
"We have got to revisit our policies, banks should be on some occasions also allowed to be closed down. Save the depositors but you don't have to save the banks," he added.
