This Article is From Jul 08, 2014

Control Fiscal Deficit Through Economic Expansion: Finance Minister

Ahead of his maiden Budget, Finance Minister Arun Jaitley said on Tuesday fiscal deficit needs to be maintained at an acceptable level through expansion of economy and tax buoyancy rather than contracting expenditure.

Replying to supplementaries during Question Hour in the Rajya Sabha, he said fiscal prudence is required because if the deficit goes out of control it would mean borrowing more to finance current expenditure.

"So, if we are borrowing more in order to finance the current expenditure, we are spending beyond our means. If we are spending beyond our means, we are going to leave behind a legacy of debt," Jaitley said.

Fiscal deficit has to be "maintained at an acceptable level," he said. "And, the current acceptable level, which is by the FRBM Act, is that you have to move towards 3 per cent."

"I would personally have been happier if the containment of fiscal deficit takes place by expansion of the economy, by greater tax buoyancy, by greater tax collection, rather than by contracting expenditure," Jaitley added.

Stating that fiscal deficit can be controlled by either collecting more revenues or by spending less, he said "When you spend less, you also tend to contract the expenditure and the economy. Therefore, we will have to have a judicious mix of expenditure as well as revenue collections".

But in exceptional times like the 2008-09 global slowdown, fiscal deficit has to be put behind and come out with an economic stimulus, he said, adding that "these are circumstances where the fiscal deficit itself will rise".

Fiscal deficit in 2013-14 was 4.5 per cent of the GDP, down from 4.9 per cent in the previous year and 5.8 per cent in 2011-12, Jaitley said, adding that it was showing declining trend during the past three years.

To reduce fiscal deficit below the desirable level and to improve macro-economic environment, the government has taken various measures for rationalisation of expenditure and optimisation of available resources.