The government will have a tough time correcting its financial course from the current high level of fiscal deficit, unless it decides to raise taxes or cut spending, said Prime Minister's Economic Advisory Council (PMEAC) member Govinda Rao.
"Fiscal deficit will remain a challenge in the coming years. . . and debt today is taxes tomorrow," Rao said on Tuesday at a seminar organised by Scope, a body of public sector units, on the implications of the Union Budget 2010-11. Fiscal deficit, which was to fall below 3 per cent in 2008-09 as per the Fiscal Responsibility and Budget Management Act, grew to 6.2 per cent on high government expenditure and tax cuts undertaken to soften the impact of the financial crisis.
The Budget for 2010-11 projected a fiscal deficit of 6.7 per cent for 2009-10 and 5.5 per cent for the next fiscal.
Further, as per the rolling target, fiscal deficit is to fall to 4.8 per cent in 2011-12 and 4.1 per cent in 2012-13.
"So, you will have to work it back ... you need to either increase revenues or cut down expenditures. Then you will have to decide which expenditures to cut and which taxes to raise. Now, isn't that a challenge?" Rao said while talking to reporters.
The 13th Finance Commission has said the overall debt to GDP ratio should be reduced to 68 per cent and for this the Commission has suggested separate targets for the Centre and states.
"When you have to reduce your fiscal deficit year by year, it's not an easy job," said Rao.
