Indian Finance Minister Palaniappan Chidambaram gestures during an interview in New Delhi on Thursday. (Reuters)

NEW DELHI, 16 September 2005 — India should meet its fiscal deficit target this financial year and there is no need for new taxes to fund an ambitious rural jobs program, Finance Minister Palaniappan Chidambaram said yesterday. “I think we will succeed this year,” he told Reuters in an interview, when asked if he would meet the federal fiscal deficit target of 4.3 percent of gross domestic product.

But he admitted it would be tough to make further inroads into the deficit in 2006/07, partly because the government had already made faster progress than expected. “That puts greater pressure on fiscal deficit reduction, because we have already front-loaded the fiscal deficit correction,” he said. The fiscal deficit fell to 4.1 percent of GDP last year, compared to the 4.5 percent the government had targeted.

He said he would try to adhere to the Fiscal Responsibility and Budget Management (FRBM) Act, which requires the government to cut the deficit by 0.3 percentage points every year - but he made no promises. “We are going to try to adhere to the FRBM commitment,” he said. “We will see next year.”

The government says a plan to create 100 days of employment a year for tens of millions of rural poor could cost $11 billion a year when fully implemented, and Chidambaram said it would have to be financed by cutting spending and improving tax collection.

“Therefore, we would have to improve tax administration and hence tax revenues on the one hand, and on the other we would have to be very strict about public expenditure management.” Asked if taxes would have to rise as a result of the jobs plan he said: “I don’t think so. I have said tax rates must be stable, moderate and reasonable.” “Whatever tax rate changes required to be done have been done in the first two budgets,” he added.

Chidambaram listed public spending as one of his three main concerns, along with high oil prices and maintaining domestic and foreign investment into Asia’s third-largest economy. But he said he saw room to make savings. “We have taken on huge responsibility, huge expenditure commitments, so we need to be very tight on public expenditure. In order to finance our flagship programs we would have to knock out many obsolete programs,” he said.

This was a difficult task, he said, but the government had already identified programs which could be cut. Chidambaram also said there is no sign of a speculative bubble in the Indian stock market, and price/earnings (P/E) ratios remain comfortable.

India’s benchmark BSE share index has risen nearly 25 percent this year, fueled by a surge in foreign buying. The 30-share Bombay stock exchange Sensex index rose 94.28 points or 1.15 percent to close at 8,283.76, beating the previous record close of 8,193.96 set Tuesday which capped seven straight trading days of record levels.

“At the moment, P/E ratios are in the comfort zone between 16 and 16.5 or so,” he said. “If P/E ratios remain in the comfort zone, there is no reason to worry about a particular index number. At the moment, there is no cause to worry.”