JOIN USPrime minister Manmohan Singh has cut the ice by holding a rose to the faces of naysayers and industry. This rose has ‘keep-the-faith’ written all over it. His promise to cut the current account deficit (CAD), is without any long-term proposals on tackling the fiscal deficit, which is at a decadal low of around 5 per cent and can bring the economy closer to the much reviled 5 per cent GDP growth prognostications of the Central Statistical Organisation made back in February.
To go with the cocksureness of regaining an 8 per cent growth rate, the PM has not spelt out measures to regain investor credibility by improving governmental decision-making. Key projects in retail, steel and iron ore sectors continue to be delayed on various counts. When 75 per cent of investments by the PM’s estimates, comes from the private sector, stimulating growth would require a will to penetrate new export markets and broaden the services sector while keeping inflationary tendencies in check.
While the PM classified the downturn as ‘temporary’ the fact remains that private sector output has barely increased in the last 17 months with weak domestic and foreign demand. Capital investments continue to be weak going by industrial output contracting 2.5 per cent in February.
Any new projects in the manufacturing and services sectors towards the close of the fiscal can but briefly perk up the March numbers when their inflow continues to be weak. Yet, recruitments in the manufacturing and financial services spaces, in particular, has been robust in the face of adversities like higher input costs and power shortages.
It would be early to say if operating costs of the industry have plateaued when firms are choosing to link more investments to a revival in demand. The PM and his finance minister should look beyond the overstretched consumer as the only hope for deficit management and growth. Virtually every economic indicator still points to trouble. CAD is at a record high.
So are energy and food subsidies, and food prices are soaring at a time when the average family already spends almost half its income to feed itself. The government has done well to restrict expenditure and improve indirect tax collections in March, though this will only mildly extenuate the fiscal deficit. But more importantly, faith in the economy must be gained before roses soliciting the same are extended.