Finance Minister Pranab Mukherjee on Monday said the government has to address the high fiscal deficit, which has been projected at 5.1 per cent of gross domestic product for the financial year ending March 2013, or about Rs5.2 lakh crore.
Mr. Mukherjee also said that the country needs to return to a high growth path. India’s GDP growth rate was 8.4 per cent in fiscal 2011 but slipped to 6.5 per cent in fiscal 2012. The GDP growth rate for the last quarter of 2012 was a dismal 5.3 per cent, well below the 6.1 per cent that experts had been expecting.
The finance minister also stressed on the need to control the current account deficit but said the balance of payments situation is nothing like it was in 1990, when India had to give its gold holdings as collateral against dollar borrowings to service its import bill.
The rupee has been falling rapidly in the past few weeks, hitting a series of record lows, the most recent one being on May 31 when it slipped to 56.52 against the dollar.
The slide of the rupee has also sparked talk of a 1990s-style BoP crisis that also triggered India's first round of big-bang economic reforms.
However, he also said that inflation would have to be contained and that the government will be able to control the economic situation. He also conceded that it is not possible to pass on the price of fuel fully to consumers. The Indian government heavily subsidises kerosene and LPG, which are critical for both low-income groups, as well as diesel, which is imperative to keep inflation low.
The Reserve Bank of India, whose primary mandate is to keep inflation under check, has resorted to a high-interest regime to keep liquidity tight and prices low. However, headline inflation, continues to be outside of the central bank's comfort level -- in the month of Apri, it rose to an alarming 7.23 per cent, well above expectations.
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