Govt plans reforms to cut deficit - min

By Manoj Kumar

NEW DELHI (Reuters) - India will start reforms including that for subsidies, taxes and stake sales of state-run firms to bring the fiscal deficit under control, a junior finance minister told lawmakers on Friday.

Namo Narain Meena said in a written reply to parliament that the government was aiming to cut the deficit to 5.5 percent of gross domestic product (GDP) in FY11 from an estimated 6.8 percent in FY10, and further reduce it to 4 percent in FY12.

India's financial markets were rattled after the budget projected on Monday a record 10 trillion rupees spending that widened the deficit and increased borrowing needs for FY10.

But Finance Minister Pranab Mukherjee justified the move saying higher spending was needed to stimulate a slowing economy.

"To bring the fiscal deficit under control, the government will initiate institutional reform measures which will encompass all aspects of budget such as subsidies, taxes, expenditure and disinvestment," Meena said.

In reply to another question, Meena said government's subsidy bill mainly for cheaper grains for the poor and selling fertilisers and oil at less than market price was expected to cross 1 trillion rupees in 2009/10.

The deficit more than doubled to 6.2 percent in FY09 after the government boosted spending on subsidies, debt scheme for farmers, cut factory-gate duties to stimulate a slowing economy hit by high borrowing costs and then the global financial crisis.

India is exploring ways of raising resources from non-tax sources such as sale of third generation wireless spectrum (3G) and stake sales in state-run firms to cushion the deficit.