Govt aims to cut fiscal deficit to 3% of GDP by 2017: Chidambaram

The author has posted comments on this articleReuters | Oct 29, 2012, 11.58AM IST

NEW DELHI: India will move to cut its fiscal deficit to 3% of GDP by March 2017, the finance minister said on Monday, as the government tackles its ballooning expenditure to prevent the country's credit rating being downgraded to junk.

After years of policy inertia that hit investments and slowed economic growth to a near three-year low, the Congress party-led ruling coalition is pushing ahead with key reforms to stimulate sluggish growth.

"As fiscal consolidation and investors' confidence increases it is expected that the economy will return to the path of high investment, higher growth, lower inflation and long-term sustainability," Finance minister P Chidambaram told a news conference in New Delhi on Monday.

Chidambaram's comments came a day ahead of the Reserve Bank of India's (RBI) quarterly policy review. The central bank, which is not expected to cut rates on Tuesday, has previously called for fiscal consolidation measures from the government.

The central bank's governor, Duvvuri Subbarao, met with Chidambaram on Friday.

India's fiscal deficit widened to 5.8% of GDP last year from 3.5% in 2007/08, and could hit 6.1% this fiscal year that ends in March, according to a government panel report last month.

The International Monetary Fund sharply cut its economic growth forecast for India for 2012 this month to 4.9% from 6.1% previously. Rating agency Standard & Poors said this month the country faces a one-in-three chance of a credit rating downgrade to junk over the next two years.

Chidambaram said the government is targeting a fiscal deficit of 5.3% of GDP for the current fiscal year ending in March. The deficit would be brought down through rationalised and strict control of expenditure, he said, without harming flagship poverty relief programmes.

The move comes after a government panel last month warned that the country was teetering on a "fiscal precipice" and must slash large subsidies in order to get its ballooning fiscal deficit under control.

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