New Delhi, Feb 19 (Calcutta Tube) India must initiate fiscal correction in the upcoming budget, but also tread carefully while exiting stimuli packages as it must not crowd out expenditure on infrastructure, the Prime Minister’s Economic Advisory Council said Friday.
‘The government cannot continue with the kind of large revenue and fiscal deficits recorded in the last two years and will have to initiate fiscal consolidation in the coming fiscal year itself,’ the council said.
‘While it is important to reduce fiscal deficit significantly in the coming budget, it is important to safeguard capital expenditures, particularly in the infrastructure sectors,’ it said in a report to Prime Minister Manmohan Singh.
‘Infrastructure spending is critical and even if the private sector investment in infrastructure is sought, government will have to provide adequate viability gap funding,’ the council said.
‘Thus, there is no scope for compressing capital expenditures while undertaking fiscal correction.’
According to the council, the main reason for higher fiscal deficit was a step up in expenditure and not on account of any major tax cuts for individuals or the corporate sector. Also, it augmented consumption and not investment.
Yet, the council also said that it was easily possible to reduce the expenditure to gross domestic product ratio by at least 100 basis points, as a large portion of farm loan waiver had already been paid, while subsidies could be maintained at current levels.