Curtail Wasteful Expenditure To Control Fiscal Deficit
10/18/2012 9:05 PM Thursday
It was somewhere in the beginning of September that DSIJ had confidently answered one vital question on that has been on everybody’s mind, “Has The Bull Run Begun?” The foresight of our judgement (which was an overwhelming “Yes”) is known to all our readers. The difference between now and then is that investors have started sensing the government’s serious intent of pursuing reforms and addressing the problem of fiscal imbalance promptly.
In fact, the so-called reforms including allowing of FDI in retail, enhancing the price of diesel by Rs 5 per litre and the rationing of subsidised LPG cylinders announced by the Prime Minister six weeks ago are not something very great. Over the past three years, all these issues have been discussed at length by economists and experts, including by us at DSIJ. However, the government conveniently ignored all the noise until it found the economy tottering on the brink of a collapse. It was only under pressure from corporate heads and economists that the Prime Minister unleashed the ‘animal spirit’ in order to manage the crisis.
The result of this has been a change in the business environment from that of pessimism to one that is optimistic. But the road ahead is equally challenging. What the government needs to do is take concrete steps to control the fiscal deficit on a priority basis, as that is the biggest danger to economic growth. International ratings agency Standard & Poor’s has forecast India’s fiscal deficit for FY13 to be in the range of six per cent of the GDP as against our own target of 5.1 per cent. If the government wants to rein in the deficit at 5.1 per cent of the GDP, which is around Rs 513395 crore, it has to raise money through various means. One way it could do this is by auctioning air waves, which could fetch it around Rs 40000 crore. Another Rs 30000 crore could come from selling stakes in state-controlled companies, and the balance from borrowings. This means that the government will have to resort to huge borrowing if it has to keep the fiscal deficit at the planned levels.
But why is the government so adamant on bridging this wide gap rather than bringing it down by curtailing its unnecessary expenditure? Is it not more prudent, whether in case of companies, individuals or governments, that when one is faced with a scenario of lower income vis-à-vis expenses, a better thing to do is to cut down on expenses? Unfortunately, this is not a priority for our government. Before the government inflicts pain on the people of this country in a bid to bring down its subsidy burden, it would be nice for it to bring down its own wasteful expenditure.
The government is trying to convey through various means that we are all set to grow by 8.2 per cent in the 12th Plan and that we will soon get over the current difficulty. This is a totally wrong approach that needs immediate correction, and the government needs to show its strong determination to carry forward big ticket reforms.
The only person who is positive on the economic prosperity is our Finance Minister, P Chidambaram. He has been quick to put on record that allowing FDI in retail, the hike in diesel prices and rationing of subsidised LPG are only a fraction of the overall reforms program. The real reforms, which actually do not require approval from the Parliament or the allied parties in governance, are what need immediate attention. The government needs to clear pending projects with various ministries, which involve an investment of around Rs 2-3 lakh crore.
The situation has been properly evaluated by the Finance Minister, and this is why he has suggested the setting up of the National Investment Board (NIB) as a single-window body under the Prime Minister that is empowered to clear all investment projects above Rs 1000 crore. There are a number of projects today held up not for want of finances but purely on account of procedural wrangles. The proposed NIB would signal greater transparency and a sense of urgency about the government’s basic intention to get investments going. I only hope that it gets its act right and goes ahead with the formation of the NIB at the earliest.
Dear readers, the process of reforms has already begun, and the government would go ahead with reforms under all circumstances and put in sincere effort to make them yield results before the budget of 2013-14. Till such time, the markets would remain positive. Our cover story reflects the various actions taken by the Prime Minister and the Finance Minister to introduce various reforms for the growth of the economy. I hope that the markets will remain positive and reach newer heights by the time the next budget dawns on us.
Happy investing! And keep booking profits.
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