Diesel decontrol if fiscal deficit is under pressure: Kaushik Basu

“I do not really think the fiscal deficit will go out of control because we are sufficiently serious of our fiscal target. If it does come under pressure due to factors like international crude prices staying high, the government will look at ‘other’ options, chief economic advisor Kaushik Basu said

Mumbai: Chief economic advisor Kaushik Basu on Tuesday sounded confident the government will achieve its fiscal deficit target, but said if the number comes under pressure from factors like rise in commodity prices, it will have to go for reforms such as deregulating diesel prices, reports PTI.

“I do not really think the fiscal deficit will go out of control because we are sufficiently serious of our fiscal target,” he said.

If it does come under pressure due to factors like international crude prices staying high, the government will look at ‘other’ options, he said.

Elaborating on the other options the government can exercise, Mr Basu said, “One that is talked about is diesel decontrol.”

“May be if the pressure is sufficiently high and we feel that the fiscal deficit will go out of control, which will mean in the long run inflation will come back, we may be forced to say that now is the time, it is difficult, but now is the time to consider diesel deregulation.”

“There are reforms of that kind which on their own may not happen...but before we let go on the fiscal consolidation targets, we will look at those reform possibilities,” he said.

In his budget speech, finance minister Pranab Mukherjee had lowered the fiscal deficit target to be 4.6% of the gross domestic product (GDP) from last fiscal’s 5.1%.

However, a host of factors, notably the crude prices, which have consistently been over $100 a barrel, is leading to some scepticism whether the fiscal deficit target is achievable.

India imports around 80% of its crude requirement and is yet to deregulate the diesel prices, considering the far-reaching political implications it can have. It has deregulated petrol prices while diesel and kerosene prices continue to be controlled by the government.

Speaking to reporters on the sidelines of his book promotion, Mr Basu said considering the ‘difficult’ global scenario, policymakers will be revisiting the GDP growth target by mid June.

“My own expectation is that the growth projection for this year (FY11-12), which we earlier said is 9%, will come down a little bit,” he said.

Mr Basu said as a practice, the ministry of finance revises its growth target only twice a year—once in February and other in October-November.

Mr Mukherjee had also voiced a similar apprehension over the weekend in Mumbai but had said that the government will have to wait for the April-June data to come in before it revises its target.

Earlier, Mr Basu said that in order to maintain the growth momentum over the medium- to long-term, policymakers have decided to trade growth for taming the uncomfortable inflation number.

“For that (achieving long-term growth) you may need to make a bit of a change now and lose out on growth for one or two quarters,” he said.

The Reserve Bank of India had raised its key rates a record ninth consecutive time by a higher-than-expected 50 basis points on 3rd May.

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