When he took over as finance minister in August 2012, P Chidambaram had identified taming of the twin deficits — the current account and the fiscal gaps — as among his topmost priorities. Less than two years later he has more than delivered on both the promises.
India’s current account deficit (CAD) — the difference between dollar inflows and outflows that are current in nature — is set to come down to $45 billion in 2013-14 from a record $88 billion last year aided by an export uptick and a string of curbs including those on gold imports.
Importantly, the government has been able to contain the fiscal deficit — a measure of the amount of money that the government has to borrow to fund its expenses — for 2013-14 at 4.6% of GDP, a nearly 0.2 percentage point lower than the budgeted 4.8%.
“The current financial year will end on a satisfactory note with the fiscal deficit at 4.6% (below the red line of 4.8 %) and the revenue deficit at 3.3%,” Chidmabaram said in his interim budget speech.
“Emboldened by the progress made, I have budgeted for receipts and expenditure in 2014-15 that will leave a fiscal deficit of 4.1%, which will be below the target set by the new fiscal consolidation path. Revenue deficit is estimated at 3.0%, he said.
Chidambaram’s achievement on managing to close the fiscal gap has also been aided by a cut in government spending by about `75,000 crore. Besides, the successful spectrum auction that fetched the government precious revenues also helped the fiscal consolidation plans.
High subsidies had widened the government’s fiscal deficit, limiting its elbow room to spend on investing in infrastructure and development schemes to spin jobs and multiply income. The Five-Year Plan involves narrowing it down to 3% by 2016-17.
The plans draws from the recommendations that a committee headed by former finance secretary Vijay Kelkar had laid out in a recent report.