Pranab calls for fiscal consolidation, hints at spending curbs

Finance minister Pranab Mukherjee today said the government should "further tighten the belt" through fiscal consolidation in order to fortify the country against the possible spillover effects of the Euro zone crisis.

While the Indian government backed an expansionary policy in the wake of the global financial crisis, it is time now to follow austerity measures to avert a situation like the Euro zone where the system has so far failed to contain an internal debt trap, he pointed out.

The government is expected to limit its spending while leaving more leeway for private sector to play a more active role in resource mobilisation. This has been indicated in the budget where the finance minister has left excise duty rates mostly untouched, the finance minister said.

Mukherjee said the budget proposals for fiscal 2011-2012 are aimed at bringing about fiscal consolidation and help enlarge the resource space for private sector.

"I hope that the crisis in a small part of the Euro zone, where high sovereign debt is affecting the economy, will not further expand to the greater part and be confined to those four countries - Portugal, Ireland, Greece and Spain. If it happens, then, there will be another crisis and another downward chain, when the recovery is still very fragile," Mukherjee said while speaking at an Assocham event on Sunday.

"I would not like to have a repetition of that situation in India while having a huge fiscal deficit. No country can go on borrowing indefinitely, particularly from external sources. We do not need to go back to the situation we witnessed at the beginning of the nineties and late eighties," he added.