FM hawks Budget to RBI, confident of deficit target

The central bank has been vocal about the importance of early efforts to contain the fiscal deficit as it felt that in the absence of a tighter fiscal policy, its efforts to control inflation were not yielding the intended results.

In the meeting, Mukherjee explained the steps he would take to contain the fiscal deficit to within 5.1% of GDP in the next fiscal, amid concerns that high crude oil prices could upset the calculations. Both Prime Minister Manmohan Singh and Mukherjee have given enough indications in their post-Budget statements that the government was firm on early decontrol of prices of petroleum products.

On reforms in the petroleum sector, especially deregulation of diesel prices, Mukherjee said he would speak to all stakeholders and political parties after the Budget session to work out a solution. The Budget session of Parliament is expected to conclude on May 22.

In the fiscal year ending March 2012, the Centre’s fiscal deficit is pegged at 5.9%, much higher than the 4.6% estimated in the Budget. The RBI had been critical of the finance ministry’s approach towards fiscal consolidation, while many analysts doubt the viability of the Budget numbers.

The bond market has remained negative after Mukherjee announced the deficit number, and the government’s massive borrowing plan for the next fiscal. The yield on the benchmark 10-year government bond remained unchanged at 8.42% on Monday.

Mukherjee said the government will have to take some tough decisions. ?No doubt the economy is going through difficult times but merely chanting the mantras will not help,” the finance minister said. The government will try to introduce a clutch of economic reform Bills in the ongoing session, he said.

“At least 3-4 Bills for which we have received the recommendations of the standing committee, I will try to get those legislated in the later part of the (Budget) session,” Mukherjee said.

The standing committee on finance, headed by BJP leader Yashwant Sinha, is expected to give its report on the major economic reform Bills by the beginning of monsoon session, he said.

“(Standing committee) reports will be available at the beginning of the monsoon session. So if we have that then at least at the middle of the financial year we would be able to get many legislations passed,” he said.

The committee has submitted its report on the Pension Fund Regulatory and Development Authority Bill, 2011, The Banking Laws (Amendment) Bill, 2011, the Insurance Laws (Amendment) Bill, 2008, and the Direct Taxes Bill.

On inflation, Mukherjee said it will fluctuate for a couple of months and will stabilise after that. “It would be around 6.5% to 7% for the year as a whole,” he said. Inflation moderated to 6.95% in February.