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Compact fisc

For those who worship at the altar of growth, the 2005-06 Economic Survey reflects prayers answered. The economy is projected to grow at a strong 8.1 per cent in the current fiscal, well above the 7.5 per cent predicted half-way through the year.

india Updated: Feb 28, 2006 01:12 IST

For those who worship at the altar of growth, the 2005-06 Economic Survey reflects prayers answered. The economy is projected to grow at a strong 8.1 per cent in the current fiscal, well above the 7.5 per cent predicted half-way through the year. In fact, the Indian economy has recorded growth rates of more than 8 per cent only five times since Independence — and three have been in the current Plan period. Inflation is predicted to be at or under 5 per cent for the year. Thanks to a 'near normal' monsoon, agricultural output has grown by 2.3 per cent, with foodgrain production alone expected to touch 209 million tonnes. Investments as a proportion of the GDP have crossed the 30 per cent mark as of 2005, with greater investments in capital goods and infrastructure. A booming economy is also reaping the benefits of the 'demographic dividend'. India's increasingly young population is earning, and saving, a higher proportion of a higher income, which in turn can help fund higher investments.

But there are significant areas of concern. The Survey has acknowledged that accelerating and sustaining growth at 10 per cent-plus levels is "intricately intertwined" with the rapid development of basic infrastructure. While estimating that India has the potential to absorb $150 billion in FDI in the infrastructure sector alone, the Survey fails to outline exactly how. India spends less than a seventh of the $150 billion that China spends annually on physical infrastructure. With close to half its revenues going towards subsidies, defence and revenue-sharing with states, and the government's own consumption expenditure topping, for the first time, the private sector's, there is little left for investment. The Fiscal Responsibility and Budget Management Act has forced the government to bring down fiscal deficit from 6.6 per cent of GDP in 2000-01 to around 4.3 per cent. However, the twelfth finance commission award forced a 'temporary pause' on revenue deficit adjustment. With another pay commission in the offing, the Survey advocates the need for caution.

However, Survey hopes and budgetary actions are driven by totally different compulsions. With the Left already on the warpath over the 'neglect' of agriculture, rural development and employment, expectations of another 'dream budget' are unlikely to pan out according to plan.