‘Economy is exposed to overheating’

‘Economy is exposed to overheating’
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First Published: Fri, Mar 09 2007. 01 09 AM IST
Updated: Fri, Mar 09 2007. 01 09 AM IST
Leading economists on 7 March argued that the government had missed an opportunity for further fiscal consolidation in the Budget by failing to control expenditure, thereby exposing the economy to risks of overheating.
By not tightening the revenue deficit further even as the economy was clearly riding a business cycle peak, the government might be stoking inflation and risking growth, Suman Bery, director general, National Council of Applied Economic Research, said.
He was speaking at a discussion on demystifying the Budget jointly organised by four think tanks—ICRIER, NCAER, National Institute for Public Finance and Policy and India Development Foundation.
Bery said RBI’s forex assets expanded 28% in 2006, compared to 10% in 2005. Given the strong, independent and induced inflows, RBI’s policy of purchasing of surplus foreign exchange would push up the money supply levels in the economy. A step up in fiscal adjustment could help mitigate the problem of excess money in the system. But expenditure as share of GDP has actually remained at 14% for the past two years. This is true even of 2007-08, after adjustment of the money set aside for SBI share transfer, despite the share of gross tax rising from 10.3% in 2005-06 to 14% in fiscal 2008.
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First Published: Fri, Mar 09 2007. 01 09 AM IST
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