Fiscal measures if needed to calm inflation

New Delhi, Nov 16 | Updated: Nov 17 2005, 06:35am hrs
Finance minister P Chidambaram on Wednesday said the government would be happy with an inflation rate below 5%, but would not hesitate to take fiscal measures to contain prices, if necessary. Inflation for the week-ended October 29 stood at 4.75%.

Addressing the economic editors conference, the minister said global crude oil prices contributed to over 50% of the rise in inflation. The government had in August-September 2004 cut customs duties on edible oil, steel and polymers besides excise on petro-products to rein in inflation ruling at about 8%.

Mr Chidambaram also reiterated the governments intent to offload small portions of its equity in a clutch of profit-making non-navaratna PSUs in the capital market starting this fiscal-end. Discussions with the Left parties would begin soon to secure a broad agreement on such disinvestment, he said.

Some PSUs had been identified for sale of minority stakes, he said, showing keenness to put some money in the recently created national investment fund (NIF), to be used for social sector projects and revamp of PSUs. Some of the PSUs where the government may offload a part of its stake could be Air-India, Indian Airlines, BSNL, NHPC and Power Finance Corporation.

On the state of the fisc, Mr Chidambaram said Budget projections of containing the centres fiscal and revenue deficits would hopefully be met. During April-September 2005, revenue deficit and fiscal deficit accounted for 68.3% and 55.5%, respectively of budget estimates.

Fiscal indicators of state governments looked good too, with a substantial reduction in revenue deficit from 2.2% of GDP in 2003-04 to 1.4% in 2004-05, as per revised estimates. Referring to the widening regional disparities, he said the Centre would continue to be partial to weaker states while allocating resources.

On tax reforms, he expected all states to adopt value added tax (VAT) by January 1, but said no timeline could be fixed now for the switch-over to the proposed goods and services tax (GST).

The finance ministry was in agreement with the Reserve Banks estimate that the economy would grow at 7-7.5% this fiscal, he said. Mr Chidambaram attributed his optimism to lack of any contraction in farm output, a manufacturing-led first-half growth of nearly 9% in industrial output and continuing commendable performance of services, that grew 10% in Q1.

Admitting that the performance of mining (especially coal) and electricity had been disappointing, he said corrective measures would be taken to step up output in these areas. Shortage of coal and natural gas was affecting electricity output, but there were no short-term solutions given the policy rigidities.