More painful decisions needed: Rajan

Tags: News

Need to bring subsidy below 2% of GDP to achieve revised fiscal deficit target

Steps like diesel price hike and cut in subsidised LPG cylinders are only the first steps and the government needs to take more “painful decisions” to keep the subsidy bill under check, chief economic advisor Raghuram Rajan has said.

“We are moving in the right direction. That we started with a cap of cylinders, we increased the diesel prices. Yes, more needs to be done to bring it (subsidy) below 2 per cent (of GDP)... We have done something. Obviously we need to do more,” Rajan said in an interview to Karan Thapar for CNN-IBN programme 'Devil's Advocate'.

The government, he said, needed to target the subsidies in a better way and that is possible through the cash transfer scheme. “There is no doubt that at least we have taken the first step”.

Rajan further said that the revised fiscal deficit target of 5.3 per cent of GDP is achievable, but it would require “a fair amount of painful decisions”.

The government’s subsidy bill, which has been estimated at around Rs 1.80 lakh crore in the 2012-13 fiscal, is likely to go up substantially on account of domestic and global factors. The government has already sought an additional Rs 28,500 crore from Parliament towards the fuel subsidy.

Answering questions on growth prospects, Rajan said that India can achieve 6 per cent GDP growth in the second half of the current fiscal.

The economic growth rate has slipped to 5.4 per cent in the April-September period, from 7.3 per cent in the year-ago period.

For the current fiscal, the government has projected the economy to grow by 5.7-5.9 per cent, significantly lower than 7.6 per cent estimated in the budget.

Rajan said: “Hitting that upper band (5.9 per cent) of the target is quite ambitious. What needs to happen is that first all the investments, which have stalled need to come back. We need to get new investments going because investments have slowed down across the economy. You have got to get more confidence among consumers so that they start spending.”

To a query on what bitter medicine needs to be taken to restore growth, Rajan said, “We have to live within our means, we cannot spend without limits. We have to tighten the belt all the way”.

On threats of credit rating downgrade, Rajan said that fundamentals of economy are strong and “over the medium term we will get our finances in order and that is what the rating agencies care about”.

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