March inflation at 7%,growth 7%: FM

The Finance Minister,who would present the Union Budget in the middle of March,discussed the challenges faced by the economy on both global and domestic fronts.

“The current year was a challenging year as we had to face the problem of inflation,fiscal deficit and maintenance of sustainable and inclusive growth,” he said.

Due to volatility of international crude prices,euro zone crisis and overall slowdown in the growth process in developed countries,the emerging economies including India had also to face the adverse impact of global slowdown.

After the meeting,Ficci Secretary General Rajiv Kumar said the economists urged the Finance Minister to present a Budget signalling fiscal consolidation and policy reforms.

The economists also expressed concern over the widening fiscal deficit,which had crossed 92 per cent of the Budget target by December.

“Budget has to make a strong policy statement. Show the world that government is serious on fiscal consolidation and fiscal deficit will be reduced,” Kumar told reporters.

The headline inflation,which was near double digit for almost two years,has started showing signs of moderation and declined to 7.47 per cent in December.

In the first half of the current fiscal,the economy grew by 7.3 per cent amid adverse global and domestic factors. Last year,the GDP stood at 8.4 per cent.

In the last Budget,the government had projected the fiscal deficit — gap between expenditure and receipts – to fall to 4.6 per cent of the GDP in 2011-12 as against 4.7 per cent in the earlier fiscal.

The likely slippage would be due to lower tax mop-up,ballooning subsidy bill and lower divestment proceeds.

Prime Minister’s Economic Advisory panel member M Govinda Rao said the deficit in the current financial could overshoot the target by 1 per cent to around 5.6 per cent of the GDP “If fiscal deficit slippage is one per cent,next year if you want to bring it down to 4.1 per cent,there is going to be a huge problem,” he said.

Economists were of the view that the government should speed up the tax reforms.

The government is slated to implement ambitious reforms on both direct and indirect taxes fronts. Bills on Direct Taxes Code (DTC) and Goods and Services Tax (GST) are currently with Parliamentary Standing Committee.

They also asked Mukherjee to speed up policy reform process and implement its decision to allow foreign investors in the multi-brand retail sector.

Concerned over the slowing economic activities in the country,they also urged the government to take steps to encourage investments.

The Reserve Bank has said it will watch the steps being taken by the government to curtail fiscal deficit before taking a decision on rate cut.

RBI Governor D Subbarao recently said efforts to reduce fiscal deficit should also be through enhanced tax collections besides expenditure compression.