Tag Archives: Indian Economy

Witnessing growth turnpike in Indian economy: A Real Challenge

Witnessing Growth Turnpike a Challenge:

B. Yerram Raju

Fiscal Deficit at the end of November 2013.

%Y-o-Y

April -Nov

Budgeted FY 2014

 

FY 14

FY 13

 

Expenditure

17.7

14.1

16.5

Plan

19.6

10.0

29.4

Non-Plan

17.0

15.7

10.9

Revenue

12.8

13.5

22.0

Tax

7.2

15.3

19.1

Non-tax

39.8

5.4

32.8

Fiscal Deficit (% of Budgeted)

93.9

80.4

 

Source: http://www.moneylife.in, 03.1.2014

The rising fiscal deficit during the current year shown in the chart is a concern but the gloomy prospect of growth seems worse and needs a fresh look at the challenges in store. The figures clearly indicate that the plan expenditure is down by a near 10 percent while the non-plan expenditure is up by a solid 7 percent. There is a slow off take on the sanctioned projects while simultaneously pushing the salaries and bonanza to the government staff and interested parties moving on a big tea party.

When growth slows down there is bound to be a hit on the revenues and that is what we see here.  It is still possible to hit the revenue target if past dues and the backlog are recovered and the tax disputes for years end on some good compromises. But this would be no guarantee for bridging the revenue deficit in full. The Food Security Act 2013 is yet to roll out for implementation. If the efforts afoot are any indication, during the coming two months the transport costs on TPDS and the distribution costs are going to take the fiscal deficit to the roof, not to speak of the other items like oil and gas subsidy, MNREGS wage increases etc. Against the backdrop of these increases the inflation is bound to continue its double digit run. This would eventually force the liberal Rajan to take the interest rates northwards. Adding to all these would be the election expenditures that have cascading effect in 2014-15.

The fifteenth Finance Commission would come up with its Report immediately after the next Government takes the reins. It may bring forth fresh federal financial relationship to the table for greater decentralization to take effect. The euphoria of election wins would subside once the new government settles for serious business.

Post-liberalization trended towards a sustainable growth in the services sector while the country has to look for investors from developed countries for growth in infrastructure not supported by right policies.

Even to stay where we are in growth trajectory, we need multiple times of investments in school buildings (most public school buildings in villages and towns are in dilapidated state: some with collapsing roofs; some with no basic amenities like safe drinking water and wash rooms for children; no play grounds; no teaching aids etc.); primary health clinics; safe drinking water; drainage and sewerage systems; sanitation; highways – both central and state; repairs to rail tracks and replacement of train compartments at galloping speed to catch up with the new trains and emerging demands on rail traffic; goods transport coaches; airport maintenance etc., most of which are with the governments, State and Centre. The resources have to be found either through public borrowing or increase in taxes. If it has to borrow, it will be of long term nature as all such assets have no prospect of returning either the principal or interest. Its capacity to indulge in fiscal deficit is peaking. The virtuous moves of right to employment, right to education and food security have their loopholes in the systems that were created to result in their effectiveness.

Primary education has gone for a toss in the country and the foundations therefore have become weak. Now the effort should be to concentrate on building basic curriculum around culture, ethics, history and an orientation to understanding and respecting societal relationships. Our multi-religious and multi-cultural base has boundaries of tolerance and respect of each other in the society. This should be the base for free education up to the primary level. The rest of the edifice can easily be built thereafter.

The country’s natural resources are declining in productivity: rivers are silting more at the nose-end where they join the sea; minerals like coal to generate the thermal energy are inferior although the stocks are assured till 2050 but these are environmentally hostile; the country has very little natural gas, fossil fuels and has to depend on such of these depleting resources of the West and Middle East; soils are also depleting in energy with regeneration requiring huge organic resources; nuclear and solar energy are proving to be highly expensive.

Agriculture production though has potential still left in the virgin soils of Bihar and eastern UP on the Ganges plains, frequent flooding of rivers and mismanagement of rivers and riparian States on such count do not leave enough hope for sustainable growth here. Forest wealth is also degenerating. Animal and bird population to maintain ecological balance in the biosphere suffers from disease and malnutrition due to wanton neglect in most cases and in others due to the ravages of nature.

GDP does not distinguish between waste, luxury and satisfaction at fundamental levels and there is no accounting for the costs and benefits.GDP keeps growing with rich becoming richer taking for granted the reduction in the poor; the companies may invest and grow but the employment may go down with every unit of increase in production and the market index rises with no guarantee for equal share for their contribution. Happiness Index of Bhutan model could be a better index for growth but we have gaping statistical holes. Labour reforms are imminent.

Claims just keep growing while resources keep depleting – and real prices of energy and commodities have begun looking to north with little prospect of reversal. Financial inclusion needs a more vigorous pursuit with heart and soul and not sound and fury.

2014 therefore has a very long and enduring agenda waiting in corridors of power.

The Author is an economist and Risk Professional. Can be reached at yerramr@gmail.com

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