Battered by galloping prices and the rupee sliding to a record low of 54.51 against the dollar, finance minister Pranab Mukherjee said on Wednesday that some austerity measures were likely soon.
The House later returned the bill, marking the completion of the three-stage budgetary exercise for 2012-13 by Parliament.
“Somebody has pointed (out) ... that I am going to take a little bit of unpopular steps. I am going to issue some austerity measures. Some sort of austerity measures (have to be taken) to convey the signal that we are responding to the situation as needed,” the finance minister said.
Mukherjee also hinted that the government may have to hike retail prices of petrol and diesel.
“Petroleum prices (in the world markets) are increasing by leaps and bounds…If we do not take corrective measures, we will have to face disastrous consequences,” he said.
India’s economic growth is estimated to slow down to 6.9% in 2011-12 — the slowest in three years. The data will be released later this month. Mukherjee said, “Yes, we are concerned that our GDP growth has come down.”
At Rs. 5,13,590 crore, or 5.1% of GDP — the value of all officially recognised final goods and services produced in a country during a particular period – the high fiscal deficit and heavy debt burden remain India’s key worries.
Mukherjee’s austerity pledge came on a day when the rupee closed to a record low of 54.51 despite a raft of measures by the RBI as global economic worries intensified after Greece announced plans to hold fresh elections.
Stocks were hit as well with the 30-share benchmark BSE Sensex falling by 298 points, or 1.8%, to close at 16,0390 on Wednesday.
The prospects of falling tax revenues because of the economic slowdown and a rise in expenditure will further reduce the government’s elbow room to borrow and spend its way out of a crisis.
Already a slew of proposals, including the government’s decision to retrospectively tax older corporate transactions such as the Vodafone-Hutch deal of 2007, sparked fears among global and domestic investors.
The finance minister said he welcomed foreign investments, but would not allow the country to be a tax haven. The principal opposition party, the Bharatiya Janata Party, has also supported the retrospective tax proposal, arguing India has the rights to amend its tax laws.