Fiscal prudence path taken to save India's credibility: FM

NEW DELHI: The government on Tuesday said a partial withdrawal of fiscal stimulus announced in the wake of the global financial crisis was needed to save India's credibility globally.

Rejecting the charges levelled by the Opposition, which has been demanding a roll-back of hike in petrol and diesel prices, that he is obsessed with fiscal consolidation, Finance Minister Pranab Mukherjee said: "If we do not follow the fiscal prudence norms, the credibility which we have will be lost."

Replying to a debate on the Finance Bill in the Rajya Sabha, he said at the same time development cannot be compromised just because fiscal deficit has to be contained.

"It's not too much about obsession. It is about prudent fiscal management," he added.

He said it was precisely because of fiscal prudence that the RBI was able to buy 200 tonnes of Gold from IMF, reversing the situation of early 1990s when India had to pledge 67 tonnes of the precious metal to the multi-lateral agency to borrow funds to meet import requirements.

Mukherjee said the country's foreign exchange position "has improved substantially" which is clear with the government's decision to increase its gold reserves.

India, the world's biggest gold consumer, had last year bought 200 metric tonnes from the International Monetary Fund for USD 6.7 billion.

"I would like to convey a signal that the foreign exchange position of this country has improved substantially that today we can buy gold to enhance our gold stock," he said.

Fiscal deficit, which measures excess expenditure of the government over its income, had risen to 6.7 per cent of GDP last fiscal after the government provided stimulus to the economy to blunt the impact of global financial meltdown.

To rein in rising fiscal deficit, the government partially withdrew stimulus by increasing excise duty by two per cent to 10 per cent.

It also raised duties on petrol and diesel, for which it drew flak from the opposition. Despite the opposition's persistent demand, the Finance Minister refused to roll back duties on fuels, saying the fiscal situation does not permit it.