Reading the Indian Economic Survey 2014-15 prepared this time by economist Ila Pattnaik. Sombre read and as I suspected the fiscal deficit was 5.1% in 2012-13 and the implied deficit is 6.2% in the fiscal just concluded. If you add the states deficits (3.2%) and CAD (1.7%), both derived from latest RBI data, we are looking at an economy running on 11.1% overall deficit. In the last 10 years, the Central Government has notched up c. US$ 544 billion in deficits. Total accumulated borrowing of centre and states is likely to be in the range 0.30-0.32x GDP. Thats better than the US Feds accumulated deficit which is in the range 0.6-0,7x GDP but India has a relatively high interest, high inflation economy with uncertain and worryingly volatile revenue receipts reported by its Central Government. Indias ability to continue serving its deficit financing led government expenditure depends on the steadfastness of its growth and relatively stable mid-single digit inflation, although I would worry less about the latter and more about the former. That is because, unlike in the case of the US, the INR is not the worlds de-facto reserve currency or even one of the more liquid ones (like the Yen, Euro or Renminbi) and we cannot print our way out of troublesome receipts. Jaitleys hands may be tied, but we are at a point where nothing will be achieved by chipping around the edges. Bold schemes will be required to grow rapidly out of this pocket of trouble. A stable and predictable tax regime is but a hygiene need and no need to pat the back if that is enshrined. What will be worth watching would be the actual incentives and removal of bottlenecks to rapid industrial and services growth. Manufacturing of value added products will be a key given its higher cascade effect on employment, savings and capital formation.
Posted on: Wed, 09 Jul 2014 11:55:11 +0000
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