Hope EU debt crisis does not spread to rest of eurozone: FM

"I hope the crisis in a small part of the eurozone will not further expand," he said.

Finance Minister Pranab Mukherjee said if the lingering sovereign debt crisis in some of the eurozone economies is not contained,the global economy may fall into another crisis,which could have a debilitating impact on fiscal consolidation efforts.

“I hope the crisis in a small part of the eurozone,where high sovereign debt is affecting their economies,will not further expand to the greater part and be confined to those four countries. If it happens,then there will be another crisis and another downward chain when the recovery is still very fragile,” Mukherjee told a post-Budget meet organised by industry chamber Assocham.

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“I would not like to have a repetition of that situation in India by leaving a huge fiscal deficit; therefore,I had to resort to these measures (referring to the lower fiscal deficit target for next fiscal and the tax-raising measures announced in the Budget for the next fiscal),” he said.

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Stating that “no country can go on borrowing indefinitely,particularly from the external sources,” he said,”We do not need to go back to our past or the situation we witnessed in the beginning of the 90s and the late 80s…

We have to bring in more fiscal discipline.”

On the rationale behind his lower deficit projection,Mukherjee said,”Taking advantage of the buoyancy in revenue and in both direct and indirect taxes,I thought this is time to resort to a further tightening of the belt,so that fiscal expansion could be brought back to manageable limits. I have

no hesitation to say that I am a bit conservative. But the type of situation that is emerging (warrants more measures at fiscal consolidation),” he said.

The Union Budget for 2011-12 pegged the fiscal deficit at 4.6 per cent,lower than 5.1 per cent in the current fiscal. Thanks to an unexpected 3G spectrum haul,the government succeeded in reining in the fiscal deficit from an initial target of 5.6 per cent to 5.1 per cent in the current fiscal.

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On the fiscal consolidation front,he said,”I must emphasise that increased expenditure in 2010-11 was a one-off event resulting from a better-than-anticipated non-tax revenues (from the auction of 3G spectrum).

“We made a deliberate decision to expand expenditure by about Rs 50,000 crore in 2010-11 on critical infrastructure and social sectors and also to meet the expenditure on the subsidies. We are now making an equally deliberate decision on the fiscal consolidation,” said Mukherjee.

Allaying fears in some quarters on the expenditure numbers in the Budget proposal,he said,”Let me point out that growth in total expenditure in 2011-12 is about 13 per cent over the Budget estimates of 2010-11.

“It comprises over 18 per cent growth in Plan spending and only 10 per cent in non-Plan. In comparison to the revised estimates for 2010-11,growth in total expenditure for 2011-12 is about 3.5 per cent.”