Fiscal deficit target reachable with $100 oil - Ahluwalia
Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said the new budget's target to slash the fiscal deficit to 4.6 percent of GDP, a goal many economists deride as optimistic, is achievable even if oil averages $100 a barrel for the year.
Ahluwalia also said no decision had been made on when to submit diesel prices to market forces, a long-delayed move that would ease government's subsidy burden but add to inflation and anger voters ahead of elections in five states.
On Monday, Finance Minister Pranab Mukherjee said India's economy would grow at about 9 percent in the fiscal year starting in April and the government would cut its fiscal deficit to 4.6 percent of GDP from 5.1 percent in the current year, a figure that was flattered by $23 billion in telecoms licence revenues.
"He has committed himself to a 4.6 percent fiscal deficit. In a way it does not matter how he achieves it. I mean, in the course of the year if things turn out to be different, and there are many things that could turn out to be different, he'll have to do something," Ahluwalia said on Tuesday.
"The nature of fiscal responsibility is not that I carefully calculate everything and give the right number. He just says, look, I am going to manage the economy so that I end the year with 4.6 percent. I think he is well within a reasonable margin of that," he told Reuters in an interview.
Monday's budget was greeted with scepticism by many observers worried about a potentially huge subsidy burden if global oil prices remain elevated and India enacts a costly new food security bill during the year.
Brent crude traded around $112 per barrel on Tuesday, down from close to $120 per barrel last week, its highest in more than two years, largely on fears that political upheaval in Libya would spread in the Middle East.
Some economists, meanwhile, expect India's economic growth to slow from the 8.6 percent it is on track to reach in the current fiscal year that ends on March 31.
"It will be difficult for the deficit targets to be met as expenditures have been under-budgeted and revenues have been over-budgeted," Goldman Sachs economists wrote after the budget.
"The expenditure targets are ambitious, especially on subsidies," they wrote, noting that oil subsidies in the next year's budget are 40 percent lower than the oil subsidies in the current year.
Ahluwalia, who along with Prime Minister Manmohan Singh was a key architect of India's economic liberalistion in 1991, said he expects the unrest in the Middle East to subside in the next month or six weeks, which would take pressure off crude prices.
"I think if oil prices remain at or just below $100 per barrel on average during the year, then I think he had made a fair amount of provision for petroleum subsidies," he said.
Last year, the government freed petrol to market pricing but it still sets prices for the much more widely used diesel, as well as cooking fuels.
A Congress government on the back foot over persistently high inflation and its handling of a spate of corruption scandals has little appetite to take politically unpopular decisions.
"The policy is diesel should also be adjusted. But you know the problem is this is a politically sensitive issue, so I think there's no clarity on that," Ahluwalia said.
"Deliberately, we've not indicated when the adjustment is going to be made. I think if oil prices had not shot up as much as they did, probably the original intention of decontrolling diesel in phases would have been implemented," he said.
JITENDRA KUMAR SINGH
PGDM-2
Ahluwalia also said no decision had been made on when to submit diesel prices to market forces, a long-delayed move that would ease government's subsidy burden but add to inflation and anger voters ahead of elections in five states.
On Monday, Finance Minister Pranab Mukherjee said India's economy would grow at about 9 percent in the fiscal year starting in April and the government would cut its fiscal deficit to 4.6 percent of GDP from 5.1 percent in the current year, a figure that was flattered by $23 billion in telecoms licence revenues.
"He has committed himself to a 4.6 percent fiscal deficit. In a way it does not matter how he achieves it. I mean, in the course of the year if things turn out to be different, and there are many things that could turn out to be different, he'll have to do something," Ahluwalia said on Tuesday.
"The nature of fiscal responsibility is not that I carefully calculate everything and give the right number. He just says, look, I am going to manage the economy so that I end the year with 4.6 percent. I think he is well within a reasonable margin of that," he told Reuters in an interview.
Monday's budget was greeted with scepticism by many observers worried about a potentially huge subsidy burden if global oil prices remain elevated and India enacts a costly new food security bill during the year.
Brent crude traded around $112 per barrel on Tuesday, down from close to $120 per barrel last week, its highest in more than two years, largely on fears that political upheaval in Libya would spread in the Middle East.
Some economists, meanwhile, expect India's economic growth to slow from the 8.6 percent it is on track to reach in the current fiscal year that ends on March 31.
"It will be difficult for the deficit targets to be met as expenditures have been under-budgeted and revenues have been over-budgeted," Goldman Sachs economists wrote after the budget.
"The expenditure targets are ambitious, especially on subsidies," they wrote, noting that oil subsidies in the next year's budget are 40 percent lower than the oil subsidies in the current year.
Ahluwalia, who along with Prime Minister Manmohan Singh was a key architect of India's economic liberalistion in 1991, said he expects the unrest in the Middle East to subside in the next month or six weeks, which would take pressure off crude prices.
"I think if oil prices remain at or just below $100 per barrel on average during the year, then I think he had made a fair amount of provision for petroleum subsidies," he said.
Last year, the government freed petrol to market pricing but it still sets prices for the much more widely used diesel, as well as cooking fuels.
A Congress government on the back foot over persistently high inflation and its handling of a spate of corruption scandals has little appetite to take politically unpopular decisions.
"The policy is diesel should also be adjusted. But you know the problem is this is a politically sensitive issue, so I think there's no clarity on that," Ahluwalia said.
"Deliberately, we've not indicated when the adjustment is going to be made. I think if oil prices had not shot up as much as they did, probably the original intention of decontrolling diesel in phases would have been implemented," he said.
JITENDRA KUMAR SINGH
PGDM-2
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