'Possible cut in plan outlay'

Sep 01 2013, 10:33 IST
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SummaryPlanning Commission deputy chairman Montek Singh Ahluwalia said on Saturday plan expenditure this year might be trimmed to ensure that fiscal deficit is reined in at 4.8% of GDP.

Planning Commission deputy chairman Montek Singh Ahluwalia said on Saturday plan expenditure this year might be trimmed to ensure that fiscal deficit is reined in at 4.8% of GDP.

Speaking to newspersons, Ahluwalia, however, clarified the government had not yet mooted such a cut. “We have not yet been asked to lower plan expenditure but we might consider it if it is necessary to contain the fiscal deficit. We will be reviewing the numbers in November,” he said.

The deputy chairman’s statement is important in the context of the fiscal deficit number for the April-July  period, of R3.4 lakh crore, which accounts for 62.8% of the targeted R5.4 lakh crore for the current year. India’s fiscal deficit last year was contained at 4.9% of GDP.

The estimated plan expenditure for FY14 is R5.55 lakh crore. While this is 29.4% higher than the revised estimate (RE) for FY13 of R4.29 lakh crore, it is barely 6% higher than the budget estimate. Moreover, the share of capital expenditure in total plan expenditure, at R1.1 lakh crore, has dropped to 20.2% in FY14 from levels of over 35% in FY04, though it is higher than the 17% in FY11.

A cut in plan expenditure could further hurt the already anaemic growth of the economy; India’s GDP growth in Q1 FY14 rose by just 4.4 % year-on-year, the slowest in four years. The Reserve Bank of India has pegged GDP growth in FY14 at 5.5% but most economists expect the economy to clock a growth of sub-5%.

PTI adds that Ahluwalia ruled out approaching the International Monetary Fund (IMF) for assistance, saying the economic situation has not reached a point where outside help is warranted. He said the RBI's forex reserves are adequate to manage the difficult situation. India's foreign exchange reserves were up at $278.602 billion as of August 9. “Our current economic situation does not warrant it. I do not anticipate it in the near future,” Ahluwalia said, adding, “India's reserves are comfortable.”

Replying to questions, Ahluwalia said there will be no “real improvement” in the Current Account Deficit (CAD) till the end of the second quarter (July-September) this year. On the volatility in the Indian currency, Ahluwalia said depreciation can be good for the economy to some extent as this will help to increase the country's export competitiveness and discourage imports.

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