Should reducing fiscal deficit be a priority or should thrust remain on growth?
There is no denying that
But the Govt feels that there is nothing really to worry much about fiscal deficit as in April 2008, it was at 24.7% of the projected figure for the entire 2008-09. So compared to that we are better off. Fiscal deficit is projected to be 5.5% of GDP in the interim Budget for 2009-10. But this was base don the assumption that some of the tax cuts given in the Budget would be rolled back by then and that has not yet happened. Once the stimulus packages were announced, this fiscal deficit was revised higher at 6% and it was at 6.2% of GDP in FY09.
Montek Singh Ahluwalia said that there is nothing too much to worry about and assured that fiscal deficit would not get into the double digits. By saying this, he probably sent out a signal that the focus would be on growth as deficit is not really yet a cause for worry.
But in the same tone, it is imperative then to mention that RBI Governor, Mr.Subbarao had said that there was an urgent need to get the fiscal deficit under the belt and said that keeping interest rates low would only lead to this deficit burgeoning.
If the Govt goes ahead with a populist budget, deficit could rise to around 7.5%, ie: assuming that there are more tax cuts and other benefits. The Govt plans to spend heavily on social causes. President Pratibha Patil in her address to the joint session of Parliament had said that the Government's commitment to its flagship programmes like NREGA would continue. This again means that more money will be spent. And if we add this cost too, the deficit could rise to
Surely, these numbers would have been considered by Montek Singh when saying that fiscal deficit is not a cause for worry. And this would also be based on the fact that the Govt expects money to come in from PSU disinvestments and also from the recently announced 3G licence auctions.