Fiscal deficit to remain a challenge: PM's advisory council member

The Economic Advisory Council to the prime minister wants either a cut in spending or a raise in taxes to correct the high level of fiscal deficit.
According to Govinda Rao, a member of the council, fiscal deficit would remain a challenge in the coming years. He added that debt today amounted to taxes tomorrow.

According to projections, the debt was to fall below 3 per cent of the gross domestic product (GDP) in 2008-09, according with the Fiscal Responsibility and Budget Management Act. It however grew to 6.2 per cent on high government expenditure and tax cuts undertaken to soften the impact of the global financial crisis.

The budget for 2010-11 projects a fiscal deficit of 6.7 per cent of GDP for 2009-10 which would fall to 5.5 per cent for the next fiscal. According to the target set by the government the deficit is to be brought down to 4.8 per cent in 2011-12 and 4.1 per cent in 2012-13.

Rao said that the proper approach would be to work it back, in which case either revenues had to be increased or expenditure had to be cut down. It would then need to be decided as to which expenditure to cut and which taxes to raise, which was a challenge.

According to the 13th Finance Commission, the overall debt to GDP ratio should be reduced to 68 per cent with separate targets for the centre and states.
Rao said the low level of infrastructure spending continued to be a cause for concern as the Indian economy's growth prospects depended on infrastructure spending, which was possible only when the unproductive component of revenue expenditures is reduced.

According to official data, fiscal deficit for April-January 2010 shot 34 per cent to Rs3.5 lakh crore as against Rs2.62 lakh crore a year ago mainly due to the stimulus measures initiated by the government to prop up the economy impacted by the global financial crisis.