FM pitches for political space to push reforms

New Delhi, Sept 29 | Updated: Sep 30 2006, 05:30am hrs
Notwithstanding the fact that the fiscal deficit in the first five months of the financial year was around 60% of the Budget estimate for the whole fiscal, finance minister P Chidambaram on Friday reiterated that fiscal and revenue deficit reduction targets for the fiscal would be met. His optimism, he said, stemmed from the revenue buoyancy and more prudent expenditure management planned for the rest of the fiscal.

Fiscal deficit stood at Rs 90,670 crore or 60.98% of the Budget target at August-end (full year target is to curb it at Rs 1,48,000 crore) and revenue deficit at Rs 79,398 crore, 93.71% of the Budget estimate of Rs 84,727 crore.

Chidambaram made a strong pitch for creating political space for pushing pending financial sector reforms, warning that unless this was done, the high GDP growth 8.9% in the first quarterwould be hard to maintain.

Calling the financial sector the heart of the economy, the minister said, many matters (pertaining to financial sector reforms) are either pending or are in the pipeline. I can only wish and hope that we have the political space to push through these reforms.

Expressing happiness over the economys performance in the first two and half years of the UPA, Chidambaram underlined that the key to bettering this in the second half was in adopting sound economic policies and fiscal discipline. He specifically commented on the urgency with which banking, pension and insurance sector reforms were required to be pushed.

Chidambaram, however, cautioned that the fiscal situation required to be watched carefully. We have requested every ministry and department to contain expenditure within budgeted limits, he said, adding that efforts would be to keep unexpected expenditure at the bare minimum. He pointed out that the Centres devolution of resources to states was higher by Rs 11,737 crore in April-July, indicating this was one reason for higher deficits during April-August. Devolutions are usually front-loaded, he said, hinting at a slow- down in the rest of the fiscal.

Health Report

Fiscal targets will be met; revenue buoyancy and prudent expenditure management are the key
Without pushing financial sector reforms, the high GDP growth will be hard to maintain
Banks should give credit to productive sectors even as credit growth has to be moderated
The govt and the RBI will continue to take fiscal and monetary measures to curb inflation

Allaying the fear that the robust economy would precipitate a hardening of interest rates, he said, banks should not deny credit to productive sectors even as rate of growth of credit had to be moderated. Credit to the manufacturing sectorwhich grew 11.3% in Q1should be adequate and at a reasonable rate, the minister said, adding that sector-specific policies for incentivising manufacturing, such as those being planned for chemicals and petrochemicals and IT hardwarewould have to be expedited. Raising low-cost capital for investment in manufacturing was still an issue, he noted.

On inflation, he said the intention was to keep it at 4% or less. But for high prices of some food items, inflation would have been more moderate, he said.The government and the RBI would continue to take fiscal and monetary measures to curb inflation, he added.