Government determined to contain fiscal deficit: Rangarajan

Kolkata: The Centre is determined to contain fiscal deficit to spur economic growth and will take action in this regard, the chairman of the Prime Minister's Economic Advisory Council, C Rangarajan, on Friday said.

"There is a debate between austerity and growth and we have made up our mind to contain fiscal deficit," Rangarajan said on the sidelines of a function on Statistics Day at the Indian Statistical Institute. He said the government would not go in for providing stimulus across the board and that only specific sectors would be considered for the measure.

"A fresh stimulus package is difficult like in 2009 due to high fiscal deficit, but only selected sector-specific stimulus could be considered," he said.

Rangarajan said due to macro-economic bottlenecks he was expecting the GDP to be close to 7 per cent in the current fiscal.

Rangarajan said there is need and scope for cutting subsidies on LPG, fertiliser and diesel to contain fiscal deficit which is targeted at 5.1 per cent of the GDP for this fiscal from 5.7 per cent in 2011-12.

"But for that we must build up a political consensus for good economics. Subsidies have been growing. We cannot trifle with food subsidies....but there is scope of reducing subsidies on fuel and fertilisers," he said.

"With kerosene, I can understand that there is a sentiment (for increasing price). I am of the opinion that diesel and LPG prices should be adjusted protecting some communities with low income," he said.

Asked for a time frame for the government to cut subsidies, Rangarajan said, "I cannot predict a time frame, but actions will be taken because actions will be needed".

Rangarajan said the GDP had a potential for 8-9 per cent growth, but due to macro-economic bottlenecks he was expecting it to be close to 7 per cent in the current fiscal. The hurdles were inflation, balance of payments and fiscal consolidation, he pointed out.

However, Rangarajan was optimistic about the rebound of the economy though at the same time acknowledging that it required a good governance too.

He said the negative mode for investments was due to two factors: one due to global reasons in which a country cannot do anything and another is country-specific issues like slow growth, inflation and current account deficit.

But, sentiments can reverse for capital inflows as there is a belief that India can post higher growth this year than last year and then credibility in India's growth story will return.

Without referring directly to the controversial General Anti-Avoidance Tax Rules (GAAR), Rangarajan said: "If there was misconception about some changes that had been made, there was a need to remove them, not necessarily through statutory changes but by reassuring them that the changes introduced were not intended to dampen...".

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