India's fiscal deficit for the financial year 2012-13 could touch 6.1% of the gross domestic product (GDP) if corrective measures are not taken immediately, a committee headed by former finance secretary Vijay Kelkar has said in its report.
The committee, which was set up by finance minister P Chidambaram to chalk out a roadmap for fiscal consolidation, has said that India could even slip into a situation worse than 1991 if the government failed to take appropriate steps.
"We are in state of high fiscal stress, with a 'do-nothing' approach likely to result in a central government fiscal deficit of 6.1% of GDP in the current year 2012-13, this could result from a likely shortfall in gross tax revenues by around Rs. 60,000 crore and higher than budgeted expenditures on subsidies, by about Rs. 70,000 crore," the report said.
While the Kelkar Committee report has underlined the need to significantly cut subsidies on petroleum, food and fertiliser to get back onto the path of fiscal consolidation, the government said certain recommendations were contrary to its policies and that it was important to continue with some of the subsidies to ensure a sustained and inclusive growth.
Government expenditure primarily on account of subsidies has grown in a major way in the recent past. Subsidies on petroleum, fertiliser and food make up more than 90% of the total subsidy, the report has said.
"Some recommendations appear contrary to the declared objective of the government of sustained and inclusive growth… a certain level of subsidy is necessary and unavoidable," Arvind Mayaram, secretary, department of economic affairs told reporters on Friday. He said the government was keeping a 'watchful eye' on expenditure to rule out wastefulness.
He said the government has not decided on implementing the report yet.
The Centre has invited comments of stakeholders on the Kelkar panel report. Mayaram also said that with recent reform measures, the government would be able to come close to achieving its fiscal deficit target of 5.1% in 2012-13.
Mayaram said the strengthening of the rupee to a large extent would help in tackling subsidies especially fuel subsidy as the import bill would ease. "By better economic management, we can cut subsidies," he said.
He also said the fiscal deficit gap could be largely contained with the auction of 2G spectrum and disinvestment exercise.
Chandrajit Banerjee, director-general, Confederation of Indian Industry said the Centre must ensure that subsidies are well targeted and there is no leakage. "Inappropriate subsidies lead to a lot of wastage and the country cannot afford that in an economy like ours," he said.