India's fiscal gap may not narrow to the targeted 4.6 per cent of gross domestic product in the current financial year if oil prices continue to stay high, chief economic advisor Kaushik Basu said on Tuesday.
He also cautioned that growth in India's economy may fall short of nine per cent in the current financial year because of the anti-inflationary stance adopted by the government and the Reserve Bank of India.
The government will release revised growth estimates for the current financial year by the end of June.
In presenting the Budget for 2011-12 this February, finance minister Pranab Mukherjee kept the fiscal deficit target at 4.6 per cent of GDP.
The gap was expected to narrow further to 4.1 per cent in 2012-13 and 3.5 per cent in 2013-14, the finance minister had said.
"The target was set keeping in mind oil prices at $90-95 per barrel. If oil prices go up, the fiscal deficit target will go off," Basu told reporters at a conference in Mumbai.
Crude oil prices today traded at $106.29 per barrel. The average price for crude oil so far in May is estimated at $110 a barrel, compared with $118 per barrel in April.
'TRY TO KEEP FOOTING'
Basu said the government would try to improve its fiscal situation through several reforms including decontrolling of diesel prices.
"Attaining the fiscal deficit target is difficult but we will try to hold on to it. The Budget contains many numbers. It is not only about revenue and fiscal deficit.
"We are going to work on the other part of the budget and reforms to make sure the fiscal deficit target is maintained," he said.
Basu also said high inflation poses a risk to India's economic growth. "The growth projection for this year, which is set at 9 per cent, I feel will come down a little bit," he said.
Rising inflation has remained a dominant concern for the RBI and government in recent quarters. The central bank raised key policy rates as many as eight times in 2010-11 and raised these again by 50 basis points again this month.
India's headline inflation as measured in terms of the wholesale price index was at 8.66 per cent in April, compared with 9.04 per cent in March.
"In the long run, our real aim is to sustain an inclusive growth and there will be no trade-off between growth and inflation. We have seen when our inflation crosses 10 per cent, it knocks off growth in the short run," Basu said.
"So we have deliberately taken a stance to control inflation, where we might lose out on growth for a quarter or two. But in the long run, controlling inflation and sustainable growth will go hand in hand."
Besides policy rate rises, efforts should also be made to enhance productivity and improve supply channels of food and basic items to control inflation, Basu said.
"We have been working very hard on that strategy (of controlling inflation).
"An inter-ministerial group in Delhi, we are hoping, very soon will give out a short statement on our recommendations on what needs to be done (to tame inflation)," he said.
