It appears the financial crisis is behind us, and with stronger-than-expected gross domestic product growth rate in the fourth quarter and a decisive mandate for the government, the finance minister now enjoys ample room for manoeuvre. His aim should now be to focus on the real economy, not on the financial markets, with a clear policy-setting agenda and measured execution.
Abhijit Bhatlekar / Mint
I believe that the policy announcements need to focus on two key areas to prepare the ground for a sustainable high-growth trend: inclusive growth and the supply side of the real economy.
Inclusive growth is a key imperative to achieve broad-based growth.
Towards that, my bias would be on a focused spending programme—extending the National Rural Employment Guarantee Scheme, well-coordinated rural infrastructure spending and renewed agricultural growth through credit flow, crop insurance and improved public distribution.
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Consumption is not at risk. It is supply-side bottlenecks that are worrisome!
Bold steps needed
That said, I believe we are at a unique juncture where we need to take a number of bold steps vis-a-vis fiscal expansion and targeted expenditure, to set the tone for robust future revenues:
• Speed up spending towards public-private partnership projects in the infrastructure sector, with fiscal incentives towards creating an infrastructure bond market and viability gap financing in order to kick-start the process.
• Expand structural liquidity in the financial sector and divert resources towards the real sector—insurance reform, recapitalizing public sector banks with cash, corporate bond markets.
• Improve the ecosystem to attract foreign direct investment rather than debate the actual percentages. Monitoring and centralizing some approvals should be the key.
• Marginally raise taxes at the top of the pyramid, expand the taxable population and aim to spend towards social infrastructure.
• There should be aggressive divestment in non-core sectors to raise immediate revenues. However, real public sector deficit reduction will entail a longer-term exit strategy in non-core industries
The high savings rate, which has held us in good stead until now, is at risk of declining and also being of little benefit to the private sector if we keep meandering with wasteful revenue expenditure as a driver for growth.
I think we can live with an expanded fiscal account with targeted expenditure to set the stage for sustainable growth and revenues in the second half of the current government’s tenure.