The Hindu : Business : `Hard decisions' needed to cut Govt. spending: FM

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Tuesday, Nov 14, 2006
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`Hard decisions' needed to cut Govt. spending: FM

Special Correspondent

`Macro-economic stability key to fiscal consolidation'

P. Chidambaram

NEW DELHI: Going a step further ahead from "moderation in tax rates'' and a re-look at tax exemptions, Finance Minister P. Chidambaram on Monday advocated stringent steps to reduce spending so as to contain the fiscal deficit.

Speaking at the `International seminar on defence finance and economics' here, Mr. Chidambaram said: "As we make further progress in fiscal consolidation, the softer options for scaling back committed expenditures or increasing revenues are getting diminished. We now have to take hard decision to restructure certain expenditures, to choose between important but competing priorities for allocation of scarce resources... ''

The country, he stressed, was progressing on the path of fiscal consolidation and he was happy to note that state governments were achieving similar consolidation. "The Government needs to stay steadfast on the path of fiscal consolidation and achieve [the] FRBM [Fiscal Responsibility & Budget Management] target," he said.

Noting that the "virtuous cycle of savings, investments and growth" had enabled the country to sustain high growth rates above eight per cent for nearly four consecutive years, Mr. Chidambaram said, "we are now at the take-off stage for even higher growth."

However, for this to happen, more fiscal consolidation was required as there was still some dis-saving on the Government account to the extent of 2.2 per cent of the GDP (gross domestic product) in 2005-06. "[The] Government's dis-savings has to be fully reversed so that funds are available at affordable cost for investment in key sectors," he said.

The Finance Minister observed that following the boom in the services sector, the country was now set to become a manufacturing hub, especially when the industry had recently recorded double-digit growth. However, to sustain the high growth in manufacturing and services, macro-economic stability, he said, was essential. And for that, fiscal consolidation was of utmost importance, he pointed out.

Fiscal consolidation achieved since 2002-03 yielded dividends for the economy by way of a higher domestic savings rate from 26.5 per cent in 2002-03 to 29.1 per cent in 2004-05. This, in turn, helped step up the investment rate from 25.3 per cent to 30.1 per cent and enabled higher rates of overall economic growth, Mr. Chidambaram said.

Mr. Chidambaram stressed that the Government had to ensure fulfilment of its obligations to reduce inequalities among citizens, provide equal access to quality services in health and education as also ensure adequate electricity, safe drinking water and world-class roads and highways.

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