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Let it be clear that neither the Finance Minister of India nor any other member of the Government is trying to hide the fact that we are deeply concerned over the state of our economy. There is no doubt that some of our recent policies have been ill-advised.
The fact that the consumer confidence survey has started moving in a downward direction gives us no pleasure. The failure of our public sector banks to stem the slide in deposits has created a number of problems. The recovery of the rupee and the interest rate cuts by our own central bank, the Reserve Bank of India, to ensure that liquidity conditions are maintained have not helped in the present situation.
The fact remains that India’s economy has been in a state of distress for quite some time. Over the last two years it has been moving down the curve. But there is no doubt that the timing of the decisions made by the Finance Minister and the RBI have had a disproportionate impact on the economic situation.
The recent five-year moratorium on bank NPAs is something that must be welcomed. But we would like to see the same kind of support extended to other sectors that have been hit by the downturn, such as the defence industry. We also welcome the fact that the Finance Minister has reduced corporate taxes. But we would also like to see a shift in emphasis from fiscal consolidation to growth. This is where we think the Finance Minister’s choices have been wrong.
In the case of fiscal consolidation, the argument, whether valid or not, is that we have to restore the fiscal deficit to the level of 2 per cent of GDP to enhance our economic growth. This argument seems to ignore the fact that in 1991-92 the actual fiscal deficit was 3.5 per cent and yet growth remained high. It is a myth that the fiscal deficit can deliver growth. India is a net importer of goods and services and its consumption is still a small fraction of the gross domestic product. What we need is to create new demand through domestic demand and exports.
India’s investment ratio is now about 17 per cent of GDP and this has declined further over the past year. It is time that we make the investment cycle more productive and faster. Over the last two decades we have developed a very large pool of labour and we must harness that resource to increase the investment ratio. Only then will be359ba680
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