Former finance minister Yashwant Sinha says the country is staring at a twin dilemma of fiscal and current account deficits, while the government is indulging in unproductive expenditure. Excerpts:
When you tabled the interim budget in 1991, India was facing a runaway inflation, a high current account deficit, a wide fiscal deficit. You had said "soft options have been exhausted, we can't go on living beyond our needs". Are we in a similar situation now?
We are unfortunate and I would like to remind you that these words I spoke in my interim budget speech were repeated exactly by Manmohan Singh when he presented the regular budget in 1991. And the current situation is facing the twin challenges, the twin threats, danger of burgeoning fiscal deficit and a current account deficit which seems to be out of control. We don't print dollars here. And the rest of the world is not going to support our fiscal deficit. We seem to be committing the same excesses.
What does the finance minister have to do to put a halt to this inflation?
This is bound to happen, the laws of economics are ruthless. They forgive nobody. If you have high fiscal deficit, you are bound to have high inflation.
Especially when your current account deficit is being financed by FII investments, not FDI. Hot money is coming into the system and adding to the pressure on prices. Therefore, the finance minister must come down heavily on government expenditure.
Elections are coming up. A lot of spending is going on, like rural employment programmes. Where can the government cut down?
We had taken some hard decisions when we had to control the fiscal deficit. Where do you see this happening? You talk about elections - which year has there been no election?
To what extent do you think that this is adding to the inflation, because rural demand has gone up and productivity has not?
Any expenditure which doesn't result in production will add to inflation. That's why there is a distinction between FII and FDI.
And now you spend on schemes where there is pilferage. Large sums spent on NREGA is being siphoned off. It's not that people have started consuming more. That is what is creating problems in the economy.