Prompted by high economic growth, the government is proposing to wipe out revenue deficit and reduce fiscal deficit to three per cent of the Gross Domestic Product (GDP) in 2008-09.

"We are on track to bring down fiscal deficit to 3.3 per cent this year and to three per cent in the next year and hopefully remove revenue deficit in 2008-09", finance secretary D Subbaro said while speaking at the launch of the OECD economic survey of the Indian economy.

The Fiscal Responsibility and Budget Management (FRBM) Act requires the Union Government to reduce fiscal deficit to three per cent of the GDP and eliminate revenue deficit by 2008-09.

High GDP growth of 9.4 per cent in 2006-07 and the likelihood of about 8.5 per cent economic growth in the current fiscal has increased the ability of the government to carry out the fiscal reforms as stipulated by the FRBM Act.

Subbaro's statement also assumes significance as the finance ministry has already begun the exercise for formulating the budget for 2008-09 and government's expenditure proposals would be dovetailed to ensure that it remains on course the FRBM target.

Stating that the US subprime housing mortgage crisis will have some impact on India, the Finance Secretary said, "the government faces the challenge of maintaining the impossible trinity of comparative exchange rate, suitably low interest rate and soft inflation regime".