Fiscal Expansion – A necessity to sustain India’s growth momentum

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India – On a high

• One of the fastest growing economies in the world

• Appreciating Rupee

• Low nominal interest rates

• Controlled Inflation

• Booming services and retail sectors

• Rising foreign exchange reserves

• Increased FII and FDI

A Reality Check

• Agriculture contributes only 20% to GDP

• Agriculture growing at meager 2%

• HDI – a poor 127 in 2005

• Alarming poverty levels – 26% still below poverty line !

• Education : Adult Literacy Rate only 61 % !

• Mortality rate…health issues “55 deaths per 1000 live births !!”

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The SAD part of the story

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Food for Thought• Are we investing enough in critical areas of agriculture, health,

education etc?• Is too much importance given only to fiscal deficit reduction?• Financial discipline is essential, but, can it be at the cost of the

growth of the economy?• What is more relevant in the Indian context – the outright

reduction of the deficit or concentrating on all-inclusive growth?

YES…It is questions like these which compel us

to visit this debate between fiscal restraint and

fiscal expansion in the Indian context

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Fiscal Restraint – Its impact

• Reduced government investment in agriculture

which supports 67% of our population• Reduced government expenditure on social sectors

like education, health• Greater hardships for the poor• Higher taxation rates is a real burden on the middle

class population• Inclusive growth only remains a dream• Reduced investment on R&D

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Focus on Economic Reforms

Tax Reforms

Some of the measures in the form of Direct and

Indirect taxes are:- Varying rates of excise duties on different

commodities Personal tax reduced over a period of time Custom duties have been significantly reduced

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Focus on Economic Reforms

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Focus on Economic Reforms

Public Sector Policy Critical element of India’s reform agenda Limited process of disinvestment of government equity in

public sector companies PSU’s have also resorted to capital markets to raise

resources

The disinvestment helps provide non-inflationary

resources for the Government Budget, without

adding to the fiscal deficit in a way keeping the deficit in

control as well as bringing in more investment in PSU’s

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Focus on Economic Reforms

Financial Reforms Increase in Investments Allocation of resources for efficient uses Capital Markets – Regulation, Dematerialization, New

Products, Risk Management Banking Sector – Deregulation, Liberalization,

Operational Freedom Insurance Sector – IRDA Act, 1999

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Govt Expenditure vs Poverty

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Govt Expenditure vs Poverty

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Our Stand-Point

Inclusive growth requires huge investments in

agriculture, education, health, poverty alleviation

etc, the benefits of which can only be reaped after a

certain lag period.

We perceive Economic growth as the growth of

our industries, services and most importantly,

our people for which short term fiscal expansion

will not be a heavy price to pay.

 

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THANK YOU ALL

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