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India will have to intensify reforms: experts
Wednesday, 04 February 2004, 20:30 IST
NEW DELHI: The Indian government will have to push ahead aggressively with economic reforms, including privatisation of state-run firms, to bring down fiscal deficit to sharply lower levels, say experts.
A day after the government projected an impressive 4.4 percent fiscal deficit for the year beginning April 1, analysts warned that narrowing the financial gap won't be possible without unleashing reforms across all sectors of economy.
"The fiscal deficit projection for the next fiscal year is surely impressive but it would need lot of effort on the part of the government to realise it," said B.B. Bhattacharya, director of Institute of Economic Growth.
"Low fiscal deficit will mainly depend on two things. First is the continuation of high economic growth over the next few years and second is speeding up of key reforms coupled with a check on government expenditure," Bhattacharya told IANS.
Presenting a vote-on-account, or interim budget, for 2004-05 Tuesday, Finance Minister Jaswant Singh said he would attempt to restrict the fiscal deficit in the fiscal year beginning April 1 to 4.4 percent of the gross domestic product.
The government unveils its annual budget every year at the end of February.
In view of early parliamentary election likely by April, it came up with a vote-on-account to seek parliament's nod for general expenses in lieu of the normal budget.
Singh said the government had managed to rein in the spiralling fiscal deficit in the current fiscal year to 4.8 percent despite "multiple challenges" like the Iraq war, a global downturn and uncertainty in oil prices.
While presenting the budget for fiscal 2003-04 in February last year, the government had hoped to trim its fiscal deficit to 5.6 percent for the current fiscal year ending in March from 5.9 percent last year.
The combined fiscal deficit of the central and state governments is more than 10 percent of gross domestic product, one of the highest in the world.
Leading economic think tanks and rating agencies say a sharply higher fiscal deficit would stymie efforts to put the economy in a higher trajectory of growth and make a significant dent on poverty.
Experts, however, say that the slew of incentives announced by the government in the last few weeks with an eye on the impending general elections, likely to be held by April, would not help matters.
Extending more largesse to the middle class, Singh said up to 50 percent of dearness allowance of central government staff would be merged with their basic pay.
This is something that millions of government servants across the country would be happy with - because it increases their basic salary that regularly goes up.
"Incentives like the one announced for the government staff are certainly not going to help the government on the fiscal deficit front. This will increase the salary bill of the federal government by 
35 billion," said Bhattacharya.
"The move will also have a devastating impact on the exchequer of the state governments, which spend 40 to 50 percent of their total funds on salary bills."
Noted economist D.H. Pai Panandiker said it would be imperative for any government taking power after elections to accelerate the "actual progressive agenda" in the months ahead to check fiscal deficit.
"Since this government presented just a vote-on-account and, therefore, didn't give any details on how it proposes to narrow the fiscal gap, it would be very crucial for the next government to detail a clear roadmap for fiscal correction.
"The new government may also have to take some unpopular decisions like cutting subsidies and reducing the interest rates of government savings schemes to maintain the fiscal correction momentum," added Panandiker.
Agrees T.K. Bhaumik, a senior economist with the Confederation of Indian Industry (CII). "A resurgent economy is one of the factors that prompted the government to call early elections.
"So, it was not surprising that they projected a sharply lower fiscal deficit for fiscal year 2004-05 to add strength to the feel-good-factor.
"However, given the fiscal implications of some of the budget proposals, it remains to be seen how the next government will generate the kind of revenues required to match the concessions announced."
Source: IANS
35 billion," said Bhattacharya.
"The move will also have a devastating impact on the exchequer of the state governments, which spend 40 to 50 percent of their total funds on salary bills."
Noted economist D.H. Pai Panandiker said it would be imperative for any government taking power after elections to accelerate the "actual progressive agenda" in the months ahead to check fiscal deficit.
"Since this government presented just a vote-on-account and, therefore, didn't give any details on how it proposes to narrow the fiscal gap, it would be very crucial for the next government to detail a clear roadmap for fiscal correction.
"The new government may also have to take some unpopular decisions like cutting subsidies and reducing the interest rates of government savings schemes to maintain the fiscal correction momentum," added Panandiker.
Agrees T.K. Bhaumik, a senior economist with the Confederation of Indian Industry (CII). "A resurgent economy is one of the factors that prompted the government to call early elections.
"So, it was not surprising that they projected a sharply lower fiscal deficit for fiscal year 2004-05 to add strength to the feel-good-factor.
"However, given the fiscal implications of some of the budget proposals, it remains to be seen how the next government will generate the kind of revenues required to match the concessions announced."
Source: IANS