Plan Outlays May Be Squeezed To Contain Fiscal Deficit At 4%

The Planning Commission is considering a massive reduction in the ninth plan outlays for different sectors to contain the fiscal deficit at the targeted 4 per cent of gross domestic product, while accommodating additional expenditure worth Rs 48,500 crore.

The additional expenditure has cropped up as a result of recent government decisions. The cabinet has decided to spend Rs 40,000 crore to make primary education a fundamental right while Prime Minister I K Gujral has offered to waive special loans worth Rs 8,500 crore, which were given to Punjab to combat terrorism over the past decade.

We may have to reduce allocations to other sectors and divert funds to primary education. But the fiscal deficit will have to be tackled seriously, said Planning Commission deputy chairman Madhu Dandavate.

 

Sources said the finance ministry has already made it clear that it does not favour an increase in the central governments budgetary support to the ninth plan to fund the new programme on primary education. The ministry is also keen that the fiscal deficit target for the ninth plan should be attained.

Therefore, the overall size of the ninth plan will be maintained at the targeted level of Rs 870,000 crore to ensure that there is no increase in the fiscal deficit. The ninth plan assumes a fiscal deficit of 4 per cent for achieving an annual GDP growth rate of 7 per cent.

The government may also seek more time from the Supreme Court to implement its order to treat primary education as a fundamental right. The government is hopeful of persuading the court to grant it some more time to work out the modalities for implementing the new programme.

Among the other options being considered are a sharp reduction in subsidies on non-merit goods like power tariff, as has been indicated by the finance ministrys white paper on subsidies. The additional expenditure envisaged by the new decisions has also made it all the more difficult for the government to defer the proposed hike in petroleum product prices, said sources.

We will also try to persuade state governments to share some of the additional burden on account of the new programme on primary education, said Dandavate. He pointed out that the finance ministry had not been able to release all the funds it had committed to different sectors including the power sector during the eighth plan period.