Stimulus, fiscal consolidation to go together: FM

Finance minister Pranab Mukherjee today said the government's fiscal stimulus would run its full course so that its impact is fully felt in the economy even as he expects to achieve fiscal consolidation in the medium term.

While the fiscal stimulus will have to continue, to allow its impact to fully run through the economy, he said, "it is also an imperative to come back to the path of fiscal prudence, as soon as the current economic circumstances permit us to do so," Mukherjee said while inaugurating the Economic Editors' Conference, 2009.

"Fiscal prudence is critical for maintaining a stable balance of payments, moderate interest rates and steady flow of external capital for corporate investment," he added.

Mukherjee said the government was on track to achieve the targets on fiscal consolidation indicated in his term fiscal policy statement.

The government's fiscal deficit is expected to come down from 6.8 per cent of GDP in 2009-10 (budget estimates) to 5.5 per cent in 2010-11 and further to 4.0 in 2011-12, the finance minister said. He also expects a corresponding decline in the revenue deficit from 4.8 per cent of GDP in 2009-10 to 1.5 percent in 2011-12.

To drive home his point, Mukherjee said the arrears due to government employees would be paid out in 2009-10 itself with no liability in 2010-11. Also, the increase in plan spending on account of the fiscal stimulus has been in the nature of front-loading of the plan expenditure already approved for the eleventh five-year plan, which could be aligned with future expenditures with some effort.