Hinting at some tough measures in the days ahead, Finance Minister P. Chidambaram on Friday said that some “bitter medicine” need to be taken this year to achieve much higher growth next year.
Replying to the discussion on the first batch of supplementary demand for grants in the Lok Sabha, Chidambaram expressed confidence over meeting the new fiscal consolidation targets chalked out by his Ministry.
The Government is now looking to keep the fiscal deficit at 5.3 per cent of GDP in 2012-13 and 3 per cent by the end of the current Plan period (2016-17).
“This is doable. If we are able to adhere to this fiscal consolidation path, there is no danger of sovereign rating downgrade. I am confident we will put the economy back on the rail,” Chidambaram said.
Chidambaram also expressed confidence over presenting a much better picture of the Indian economy in the upcoming Budget in February next year.
His remarks on fiscal consolidation have made corporates jittery as they see this as a signal for tax rate hikes in the upcoming Budget.
The Lok Sabha later gave its approval for the first batch of supplementary demand for grants involving an additional spend of about Rs 32,120 crore, including a net cash outgo of Rs 30,804 crore..
The net cash outgo mainly comprised of oil subsidy (Rs 28,500) and equity support of Rs 2,000 crore to Air India as part of its turnaround plan.
“I am not happy with the turnaround of Air India. If I don’t provide this amount, they will be in greater trouble. But there have been an indication of some uptick in their performance last quarter. There is no reason why Air India should not fully turnaround”.
Chidambaram also pointed out that other private carriers will increase their prices if Air India is not kept afloat.
OIL SUBSIDY
Together with the initial budget estimate of Rs 30,000 crore, the total Government spend so far towards compensation of oil marketing companies for under recoveries — oil subsidies — stood at Rs 58,500 crore.
The Centre has estimated the total under recoveries of oil marketing companies for 2012-13 at Rs 85,586 crore.
While the Centre will bring Rs 58,500 crore, upstream companies like ONGC are expected to bring in about Rs 30,169 crore. “I hope upstream companies provide more”, he said.
INFLATION
While describing the retail inflation which stood at 9.9 per cent in November as “sticky”, Chidambaram pointed out the wholesale price index based inflation seem to be trending downward.
With WPI-based inflation in November coming in at 7.24 per cent, lower than the 7.5 per cent level in previous month, Chidambaram said he expects it to trend down in next 2-3 months, providing some level of comfort.