Fiscal deficit can be reined in at 5.2% of GDP only if subsidies are cut: Kelkar Report
The much awaited Kelkar Committee report was made public on Friday. The panel in its report has said that fiscal deficit can be reined in at 5.2% of GDP for the current financial year - but only if subsidies are cut.
Importantly, the report has also suggested that diesel prices should be brought to market rates by FY14.
The Committee in its report has pointed out that the excise and service tax rates should be cut to 8% over the next few years. The final view on the recommendations of the committee will be taken by the government after receiving feedback from stake holders.
While policymakers say that the committee's recommendations are fairly reasonable, they need to be approved by the finance ministry. While speaking to Bloomberg TV India, Arvind Mayaram and Economic Affairs Secretary said that the poor need to be protected with subsidies and they will be protected.
Stating that the recommendations are rational, Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, said that the government has to take hard measures to bring the deficit down. Keeping in mind the committee’s observations on subsidies, Ahluwalia pointed out that the 12th five year plan had also suggested cutting down subsidies.
Kelkar Committee Report
- FY13 budget deficit may reach 6.1% of GDP
- Budget gap to be higher due to policy inaction
- Budget gap to have serious macroeconomic impact
- India needs immediate steps to cut fiscal deficit
- Estimates subsidies expenditure at 2.6% of GDP
- High deficit, inflation point to deeper crisis
- RBI liquidity infusion can be inflationary
- Subsidies spending pose greater fiscal risk
- Need to eliminate half of diesel subsidy next year
- Can limit deficit at 5.2% if subsidies cut