India's finance head seeks fiscal restraint

“Without fiscal consolidation, the growth we have will not be sustainable,” Mukherjee said at a press briefing in Mumbai today. “We would like to come back to the growth trajectory of 9 percent as fast as possible.”

In India, where policy makers aim to become the fastest- growing major economy in the world within four years, stimulus measures saw the deficit climb from 2.7 percent of gross domestic product two years ago. The nation's debt level is almost quadruple China's, according to International Monetary Fund figures.

India's food-price inflation, which stayed above 17 percent for a sixth week on Feb. 20, has been caused by supply- constraints rather than liquidity, Mukherjee said today.

“The current trend in inflationary pressures isn't because of monetary expansion, it is because of supply bottle-necks in essential commodities, especially food items,” Mukherjee said. “Gradually it is coming down.”

The world's fastest-growing major economy after China may expand 8.2 percent in the 12 months from April 1, from an estimated 7.2 percent this year, India's finance ministry forecast last week. GDP growth averaged 9.5 percent per annum between 2006 and 2008. Domestic consumption is driving India's economic recovery, Hewitt Associates Inc., a Lincolnshire, Illinois-based human resources adviser, said March 4.

Unwinding Stimulus

Policy makers are working to unwind 7.5 trillion rupees (US$164 billion) of tax and interest rate cuts to curb consumer- price inflation that's the highest in the Asia-Pacific region, according to data compiled by Bloomberg.

Mukherjee on Feb. 26 unveiled plans to lower the budget deficit to 5.5 percent of GDP in the 12 months starting April 1 from 6.9 percent the previous year, the sharpest reduction in 19 years. Tax increases and 400 billion rupees of state asset sales will shrink a debt burden equivalent to about 82 percent of the economy.

Central banks are urging governments to curb deficits after the global recession ended and after Greece's debt downgrade weakened the euro. Last month, Federal Reserve Chairman Ben S. Bernanke said high deficits may cause “crowding out” of investment.

India's public debt sales will rise by 1.3 percent to 4.57 trillion rupees in the year starting April 1, Mukherjee said in the budget. Fiscal restraint may help a sovereign-debt rating that's the lowest among the BRIC nations, which include Brazil, Russia and China.

Moody's Investors Service ranks India's rupee-denominated debt at Ba2, two levels below investment grade, while Fitch Ratings and Standard & Poor's have a BBB- rating, the lowest investment grade.

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