New Delhi: The tug of war between the Finance Ministry and the Planning Commission over more resources for plan projects has worsened with plan panel Deputy Chairman Montek Singh Ahluwalia saying he was keen on getting more money for the 11th Plan rather than belt-tightening to meet fiscal deficit targets.
"We really do not care for FRBM (Fiscal Responsibility and Budget Management Act) targets so long as we get the money (for the planned programmes)," Ahluwalia said, responding to a letter from Finance Minister P Chidambaram who was not in favour of shifting goalposts of FRBM to provide more resources for the 11th Plan as suggested by the commission.
Under the FRBM Act, the government has reduced fiscal deficit by 0.3 per cent and revenue by 0.5 per cent of GDP annually in a bid to wipe out revenue deficit and bring down fiscal deficit to 3 per cent of GDP by 2009. "We are just bothered about the resources for the 11th Plan," Ahluwalia said.
On the other contentious issue of Current Account Deficit (CAD), Ahluwalia said: "We are recalibrating the entire thing. It (CAD) depends on the impact of oil prices and domestic investment."
The commission is of the view that the burgeoning CAD will hinder economic growth. The CAD as a percentage of GDP is likely to grow from 2 per cent to 2.8 per cent as the GDP itself grows nine per cent from seven per cent over the five year period.
The RBI, too, has opposed the commission's view to dilute restrictions imposed by the Fiscal Responsibility and Budget Management Act, 2004 on government spending and fiscal profligacy.
On August 14, Chidambaram wrote to Ahluwalia questioning the fundamental assumptions of the approach to the 11th Five-Year Plan.
In the letter, the finance ministry does not accept the Plan Panel’s view that the burgeoning current account deficit will hinder economic growth.
Chidambaram also questioned the logic that poor demand will inhibit farm growth. "It is more supply-side bottlenecks, such as in the case of wheat, pulses, sugar and edible oils, which is dragging down agriculture growth," he wrote.
On credit to agriculture, Chidambaram said: "It may be useful for the commission to come out with some suggestions about how to strike a balance between adequate credit and ‘cheap’ credit."
Chidambaram also questioned the Plan panel’s suggestion on FRBM goalposts, saying this would undermine India’s credibility and be interpreted by the global community as changing the rules when the going got tough.
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