Inflation, fiscal deficit to remain big concern in 2011: FICCI

NEW DELHI - Relief from soaring prices of essential commodities in 2011 is unlikely, an industry survey said Monday.

The government would also struggle to contain fiscal deficit to the projected level in the coming years as increased spending on social welfare programmes and high crude oil price will strain the fiscal situation, according to an economic outlook survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI).

The fiscal situation of the central government this year seems to be under control. However, going ahead, bringing down the fiscal deficit to the projected levels in fiscal 2011-12 and 2012-13 would be a challenging task for the government, it said.

Fiscal deficit is likely to remain within the targeted level of under 5.5 percent of GDP during the current financial year mainly because of over Rs.1 lakh crore revenue raised through the auction of 3G spectrum and broadband wireless access (BWA).

Proceeds from disinvestment, better tax collections, and decontrol of petrol prices lowering the subsidy burden will help keep fiscal deficit at 5.3 percent of the gross domestic product (GDP) in 2010-11.

Expenditure is expected to go up steeply on account of rising crude prices and implementation of the proposed National Food Security Act. Deft handling of the fiscal situation would therefore emerge as a priority for the country in the next two years, the survey said.

According to the survey conducted among 11 economists during Dec 29-Jan 18 period, inflation would continue to remain a cause for concern throughout 2011.

The surveyed economists have pointed out that a structural element - of rising food prices on account of continuously increasing food demand - has been built into inflation and dealing with this situation requires more effective supply side measures.

To bring food inflation under control the government should single mindedly focus on enhancing overall agriculture production and agri-productivity levels, FICCI said in a statement.

While this should be the overarching goal, it should be supplemented by certain other measures that would improve distribution of and access to foodgrains and horticulture products throughout the country, it said.

According to the survey Indian economy was likely to grow 8.7 percent in 2010-11. The GDP growth is projected to remain 8.7 percent in the third quarter and 8.2 percent in the fourth quarter of the current fiscal.

Inflation based on wholesale price index (WPI) is likely to remain high at around 7 percent by the end of the current fiscal.

Inflation has been a big concern for the economic policy makers during current financial year. According to the latest official data food inflation was 16.91 percent and inflation based on wholesale prices was 8.43 percent, much higher than the comfort level.