Domestic stimulus must to boost revenues, says Kamal Nath

Domestic stimulus must to boost revenues, says Kamal Nath
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First Published: Tue, Jul 14 2009. 01 39 AM IST

Cutting deficit: Kamal Nath says the Budget is not a gamble. Harikrishna Katragadda / Mint
Cutting deficit: Kamal Nath says the Budget is not a gamble. Harikrishna Katragadda / Mint
Updated: Tue, Jul 14 2009. 01 39 AM IST
New Delhi: Minister of roads and highways Kamal Nath discussed in an interview the government’s response to comments and critisicms of finance minister Pranab Mukherjee’s Budget. Edited excerpts:
Cutting deficit: Kamal Nath says the Budget is not a gamble. Harikrishna Katragadda / Mint
The finance minister announced a deficit of 6.8% and if you add the states, it becomes 10.8%. Experts say that if you add to that off-budget items, it becomes 13%. The minister calls this a calculated risk, but is it, in fact, a risky gamble?
It’s not a gamble at all. In the current economic times, where the global economy is in stress, fiscal deficit is very important but cannot be the only mantra. So while fiscal deficit has to be looked at, it has to be there right in front of you. You can’t keep that as your only guiding principle. Let’s recognize that the fiscal deficit in the US is 11% (and) in the UK it’s 16%.
That doesn’t mean that the fiscal deficit is comfortable here. When we require domestic stimulus in the light of the global economic stressful situation, the better option is to have a fiscal deficit, but continue with your domestic stimulus, which provides a domestic demand-driven economy.
In his Budget documents, the finance minister declared a horizon of two years in which time he hopes to bring the fiscal deficit down by 1.5 percentage points in the first year and by (another) 1.5 percentage points in the second year. In other words, a 3 percentage points reduction of the fiscal deficit in two years. Is that really credible and possible?
What he is saying is exactly what you are saying—that it’s a matter of concern, we have to rein it in, this is our road map for reining it in.
The reason why people are worried is because you have to live with your social expenditure and you can’t switch it off. And much of your deficit is actually spent on social security for unorganized workers and food security. Now those are irreversible. You’re going to have to spend on the next year and the year after. In which case, you can’t curtail on your expenditure and the only hope you have is boosting revenue and if you don’t boost revenue sufficiently, you won’t reduce your deficit. That’s why people are concerned. Can you live up to this road map of reducing the fiscal deficit by 3 percentage points in two years?
We can, if we are going to have an economy which is growing at 6, 7 or 8%, your revenues are bound to go up.
How do you get revenues? Now, if your not going to provide the stimulus to have this increase in economic activity, how do you expect to boost up revenues?
That’s the gamble, isn’t it? You’re gambling entirely not on your ability to cut expenditure but your ability that you’ll boost revenue by growing the economy. That’s centred around 7% growth.
It has to be a simulation. There’s no gamble. Everything is a projection. You strategize, you plan and you put numbers on it. You can’t say that this is a gamble.
cnbctv18@livemint.com
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First Published: Tue, Jul 14 2009. 01 39 AM IST