Tuesday, October 16, 2012

In pursuit of happiness…

Indian policymakers have miserably failed to arrest the growing financial mess, feels Manish K. Pandey

It isn’t an optimistic avowal for an economy sweating hard to pass up a financial mess. But then, it’s the bitter truth! What else would you say when you hear the Reserve Bank of India (RBI) Governor D. Subbarao proclaiming “FY 2009-10 to be more challenging than the current one” with a sigh? In fact, the wheeze seemed to have much more in it than what he actually confirmed – the burden of the muddled past!

No doubt, over the past few years India has been on a high growth trajectory. But then, it had more to do with the buoyant show put up by both manufacturing and services sectors (of course others too!) and less by our very own policymakers. The little help they could provide (don’t forget the government influence) was by being spoil sports. Hey, how can you forget ‘some’ of the aggressive moves like interest rate cuts, stimulus packages, et al and ‘more’ of populist measures that include a whopping Rs.716.80 billion debt relief for farmers and a Rs.300.62 billion pay hike for government employees? So what, if they have a devastating effect on the nation’s financial health! To what extent should India believe her policymakers then, at a time when she is in a fix in terms of the forthcoming economic scenario, is a query that seems to be doing the rounds in many minds. “For the growth momentum to be sustained, it’s necessary to return to the path of fiscal prudence by both the central and state governments,” agrees the RBI in its latest report on fianancial assesment.

The stimulus packages will inject the much-needed support into the economy; but then, what about the country’s already-massive public debt that is officially projected to hit its highest levels this fiscal since the 1991 economic crisis? RBI has already accepted that the combined federal and state budget deficit for FY 2008-09 will come close to 10% of GDP. Even S&P anticipates the government deficit, including off-budget measures such as oil and fertiliser bonds, to increase to 11.4% in FY 2008-09 (to be the highest in the world), from 5.7% in the last fiscal. Goldman Sachs, too, seems to be in agreement with this assessment and pegs India’s fiscal deficit at 10.3% of GDP in the current fiscal. Isn’t this a wake up call for the Indian policymakers, who have been pushing spending beyond the limits?

Source : IIPM Editorial, 2012.

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