Rangarajan for reducing subsidies to pare deficit

NEW DELHI, Feb 1, 2012

The Centre on Tuesday hinted at the possibility of reducing the overall level of subsidies in a bid to contain fiscal deficit even as apprehensions mounted over the possibility of missing the target this financial year.



Prime Minister\'s Economic Advisory Council (PMEAC) Chairman C. Rangarajan stressed on the need to focus on reducing the overall level of subsidies as a proportion to gross domestic product (GDP) through an appropriate road map to reach the Fiscal Responsibility and Budget Management (FRBM) target of 3 per cent of GDP.



Addressing a lecture at Associated Chambers of Commerce and Industry of India (Assocham), Dr. Rangarajan underscored the difficulty in keeping fiscal deficit within the targeted 4.5 per cent during the current financial year but stressed on the need to keep it close to the targeted level to gain credibility.



He also expected the GDP growth rate to be in the range of 7-7.25 per cent during 2011-12 as against the 8.4 per cent registered a year ago, given the industrial slowdown and the global economic crisis. Emphasising that some segments of the economy were influenced by external factors, Dr. Rangarajan feared that should the European situation worsen it would affect the country\'s growth adversely. The global situation had affected the balance of payments situation and the rupee due to reduced inflow of capitals.



He, however, expected the economic outlook to be better in 2012-13 with inflation and interest rates settling down to lower levels. He expected inflation to come down to 7 per cent by March-end.



But as and when the complete process of regularisation of petroleum products was completed it would impact the overall inflation, he pointed out.



He underlined the need to use all policy instruments like interventions in foodgrains market, monetary and fiscal policy to bring down the current inflation to the comfort zone of 5 per cent.


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