Thursday, March 15, 2012

Fiscal correction will be slow in coming

All eyes are on the fiscal deficit number in the coming budget. There is a sense that we are on the brink of a fiscal crisis and the acid test for the FM is whether he can contain and reverse it. This is being unduly alarmistic. India's debt to GDP ratio for the centre and the states together of under 70% looks good in comparison with what we see in the advanced world today. Secondly, the states' record in improving the fiscal position has gone unheralded.

As for the centre, other things remaining constant, growth, the tax reforms on the cards (DRC, GST, extension of service tax) and disinvestment should by themselves push the deficit down close to the FRBM target of 3%. If this will not happen now (as it did in 2004-08) it is because the UPA has major spending schemes on its agenda, covering food, healthcare and education.

Most people say that if the fiscal deficit is brought down, it will release savings for investment and growth. Curb the deficit and you get on to a higher growth path. This is largely true. The government's decision to emphasise social sector schemes does entail a conscious decision to settle for a lower growth rate in order to promote equity. But that is a political decision- to settle for 8% rather than 9% growth in the medium term. If it is politically unacceptable, the people will say so in the next elections.

More in my ET column, UPA defines a new trade-off

3 comments:

chandramouli said...

When we look at the government, what is the use of achieving 9% or more of a growth rate without the same percolating to the lower strata of our society. With a higher growth rate than most of the advanced countries and being the 4th largest economy still our per capital income is deplorably low. If it is question of 8% or 9% growth the govt should settle for 8% growth and spend on the social schmes like education, health and food distribution. What is the point in harping on a high statistical growth rate when the majority of the population have no benefit accruing from the same. The govt should actively do divestment and utilise the funds on social measures as it is the job of the Government to govern and not do business. More political decisions will be taken in the budget than economic as the fate of the govt hangs in balance.

stock tips said...

All the material you described in publish is too excellent and can be very useful.thanks for giving the details. Keep changing, excited for more content.
Good returns with Stock Tips … Check out ones.

Unknown said...

http://weirdfactzz.blogspot.in/