Allaying fears of a spurt in public expenditure ahead of Lok Sabha polls, Finance Minister P Chidambaram on Wednesday said government will not compromise on fiscal discipline, notwithstanding the defeat of Congress in four states, including Delhi and Rajasthan.
Inaugurating the Delhi Economic Conclave, Chidambaram blamed the states for "inaction" to check hoarding and said the incumbent government pays a price for high inflation.
"The agenda, therefore, will be obvious. At the top of the list is fiscal consolidation. There can be no compromise -– and I speak for the government when I say there will be no compromise -– on the decision to walk on the path of fiscal prudence and contain the fiscal deficit, step by step, year by year, until we reach the goal of 3 percent of GDP in 2016-17," he said.
For the current financial year, the government has set a fiscal deficit target of 4.8 per cent.
His remarks come a day after global rating agency Fitch suggested that the poor performance of Congress in the just-concluded assembly elections could push up the Centre's fiscal deficit as there may be an "increased likelihood of political pressure to limit expenditure cut-backs".
The setback faced by the Congress in state elections, Fitch added, "could potentially raise political pressure on the government's near-term fiscal goals".
Talking about inflation, Chidambaram said: "It is common knowledge that the government of the day will pay a price for high inflation, especially if inflation persists over a long period of time". He, however, added that containing inflation was one of the top items on Centre's agenda.
Chidambaram said there is also a need to deal wisely with harvesting and marketing and deal strictly with hoarding and profiteering.
"Laws (Agricultural Produce Markets Act and the Essential Commodities Act) in this behalf are entirely in the domain of state governments. The powers of notification and enforcement under these Acts are with the state governments, yet state governments are loathe to take action under these Acts.
"I think it is necessary to highlight the inaction of the state governments in this behalf, even while accepting that the central government must do all it can, within its powers, to moderate inflation," he said.
The Finance Minister further said recession of 2008 impacted India and three sets of stimulus measures were released to deal with the impact.
Quoting Reserve Bank Governor Raghuram Rajan, he said while the stimulus did help growth initially, it eventually led to an overheated economy, high inflation and wage growth, and consequently deficits widening to uncomfortable highs.
The Minister also pointed out that financial sector reforms have been undertaken regularly over a long period and talked about the future game changers for the economy.
"Financial sector reforms can be game changers. We know what they are. They include GST, the Direct Taxes Code, the Insurance Laws Amendment Bill and the (Indian) financial code," he said.
Each one of them, he said requires the building of a broad consensus and "my experience has been that consensus is built after several months of hard work and then the consensus crumbles when it is hit by a seizure of political opportunism".