Govt will contain fiscal deficit, pursue reforms: FM

New Delhi: The government will take all steps to contain fiscal deficit and pursue reforms to deal with economic challenges, Indian Finance Minister P Chidambaram said on Wednesday.

"The fiscal consolidation roadmap for Centre has been laid out and the government will not breach the Fiscal Deficit limits," he said during pre-Budget consultations with the Finance Ministers of all the states in India.

The government has chalked out a plan to restrict the fiscal deficit to 3 per cent of GDP by 2016-17.

Chidambaram highlighted the challenges before the economy and the urgency of reform measures needed to address them.

"The second major challenge that the economy faces is the high Current Account Deficit (CAD) level," he said, adding that foreign investment is not an option but an economic imperative.

He also asked the states to fast track clearances needed for investment proposals. An official release said that he felt that if "we take concrete measures to tackle these challenges, next year would be a better year".

Meanwhile, sources said that Chidambaram told the state Finance Ministers that he will outline amendments to the Constitution on the Goods and Services Tax (GST) in his Budget speech if there is consensus among the states on the issue.

On the issue of states' demand of more compensation for reduction in the Central Sales Tax (CST), states were told that the Centre was open to the idea, but all would depend on the fiscal situation, sources said.

The two committees – one on the CST compensation issue and the other on the design of the GST – will submit reports to the Centre on January 21.

After the meeting, Sushil Kumar Modi, Finance Minister of the Indian state, Bihar who is also the Chairman of Empowered Committee of State Finance Ministers said all the states demanded compensation for reduction in the CST to two per cent from the earlier four per cent.

Modi said all Indian states raised their own issues, but there were certain issues which were common.

States want that their contribution in central schemes should not be more than 15 per cent. They also sought reduction in the total number of such programmes.

Several states said that while they were in favour of direct cash transfer of benefits, the banking network needs to be expanded especially in the rural areas.

Meanwhile, Modi said a meeting of Empowered Committee of State Finance Ministers will take place in Bhubaneshwar on January 28 and 29.

Among other things, it will discuss the recommendations of the two committees on GST related issues.

GST, which will empower the Centre and states to simultaneously tax supply of goods and services, was to be introduced from April 2010, but has missed several deadlines.

The official release further said that Chidambaram highlighted the benefits of Direct Benefit Transfer scheme and informed the roadmap for expansion of the pilot.

He informed the participants that an extensive exercise to rationalise centrally sponsored schemes is on and that, in his personal opinion, all smaller schemes should be transferred to states.

He hoped that the 14th Finance Commission will recognise the primacy of the Centre in the area of external and internal security and national issues and the primacy of States in development issues.

Some states made specific observations about Terms of Reference of 14th Finance Commission. Others also suggested specific tax changes to promote specific sectors in their states.