Pranab defends high deficit

Pranab defends high deficit

Says it is short-term strategy to boost economic growth

Pranab defends high deficit

“We have taken a calculated risk of high fiscal deficit keeping the objective of stimulating growth in mind. For us boosting growth is more important,” he told captains of Indian industry at the customary post-budget interactive sessions with apex chambers of trade and industry.

“We have to go for a high fiscal deficit to promote growth as the economy is not out of the slowdown yet. There is no option but to depend on borrowed resources,” he commented in response to industry’s concern over the ballooning fiscal deficit.
Faced with the challenge of stimulating growth ‘currently hit by the global slowdown’ Mukherjee presented the Budget for 2009-10 seeking to kick-start the economy by unveiling an ambitious expenditure plan focusing on rural development, social sector and infrastructure.

But by opting to go for big ticket expenditure, he pegged the fiscal deficit, ‘the net difference between the government expenditure and income’, at an alarming 6.8 per cent of the Gross Domestic Product (GDP)-the highest in the last two decades.

No road map

Though the finance minister acknowledged in his Budget speech the need to contain fiscal deficit, he did not provide any road map for returning to the target set under the Fiscal Responsibility and Budget Management Act (FRBM) Act.

As per the FRBM target, the Centre should have reduced the fiscal deficit to 3 per cent of the GDP and eliminated the revenue deficit “the difference between revenue receipts and revenue expenditure” by March 2010. The government plans to bridge the gap almost entirely through market borrowing of Rs 3,97,957 crore in the current year.
This kind of government borrowing is worrying the industry. Industry apprehends that large government borrowing would crowd out the financial market leaving little scope for the private sector to raise funds for its investment and business expansion.

In fact, at the interactive session conveying industry’s apprehension, CII President Venu Srinivasan said: “With a projected high fiscal deficit the government intends to go for large scale market borrowing, which will push interest rates on the higher side. When private sector investments start picking up, there is a likelihood of crowding out of private investment from the financial markets,” he told the finance minister.

In response, Mukehrjee assured India Inc that the government would keep the requirements of the private sector in mind while resorting to market borrowing.
He told industry: “We will strive hard to bring it (fiscal deficit) down in the next two financial years.” The government has set a target of bringing down the fiscal deficit to 5.5 per cent in 2010-11 and four per cent in 2011-12.

Mukherjee assured industry that the government would make all-out efforts to bring the economy back to the higher growth path at the earliest. While pointing out that the global economic slowdown is likely to continue in the current year too, he stressed that the Indian economy must come back to the high growth path as soon as possible.  “This is the reason we have decided to increase investment in rural infrastructure and agriculture as these sectors would drive growth rate in a shorter span of time compared to other sectors,” he said.

DH News Service

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