The government is confident of wiping out the revenue deficit and reducing the fiscal deficit to 3 per cent of the gross domestic product (GDP) by 2008-09. It, however, admits it faces a challenge on maintaining low inflation with reasonable interest and exchange rates.
"We are on track to bringing down the fiscal deficit to 3.3 per cent this year and to 3 per cent in the next year and hopefully remove the revenue deficit in 2008-09", Finance Secretary D Subbarao said in a speech at the launch of the first economic survey of the Indian economy by the Organisation of Economic Cooperation and Development (OECD). <b1>
The Fiscal Responsibility and Budget Management (FRBM) Act stipulates that the government will wipe out the revenue deficit by 2008-09 and bring down the fiscal deficit to 3 per cent of GDP.
Subbarao said the government was faced with the challenge of maintaining the impossible trinity of a competitive exchange rate, suitably low interest rate and a soft inflation regime. The Indian economy also faces the challenge of pushing agriculture growth to 4 per cent during the Eleventh Plan period (2007-12), expanding employment opportunities, improving service delivery and governance, and building world-class infrastructure.
OECD secretary-general Angel Gurria said India’s long-term growth prospects would be bolstered by continuing the current fiscal consolidation. He also argued for extending the FRBM Act for five more years.