Moneycontrol
Feb 26, 2013 10:51 PM IST | Source: Moneycontrol.com

Budget 2013-14: FM needs to address declining economic growth: Expert

The current economic scenario is bleak: the country faces a rating downgrade: if this happens, the ensuing capital flight will worsen the current account deficit (the excess of foreign exchange requirements over availability) and lead to further depreciation of the Indian rupee.

Budget 2013-14: FM needs to address declining economic growth: Expert

Hardayal Singh
School of Inspired Leadership

“The current economic scenario is bleak: the country faces a rating downgrade: if this happens,  the ensuing capital flight will worsen the current account deficit (the excess of foreign exchange requirements over availability) and lead to further depreciation of the Indian rupee.  The basic problem which the Finance Minister has to address relates to  the declining rate of economic growth which has slid from a peak of about 9%p.a. five years  ago to about 5% p.a. currently. During the same period investment has declined from about 38% to 30% of GDP. This is in no small measure due to the extravagant spending programmes which the  Government has undertook but could ill afford : award of 6th Pay Commission arrears to Central Government servants; loan waivers for farmers, National Rural Employment Guarantee Scheme, increase in minimum support price for agricultural commodities, etc .are just a few examples . If it wants to avoid a rating down grade, the Government will have to limit the fiscal deficit to 5.3% of the GDP in 2012-13 and to about 4.8% of the GDP in 2013-14. The reduction in governmental expenditures will help reduce inflation and restore faith in the country amongst all investors- foreign and Indian. The Finance Minister, however, should avoid falling into the trap of increasing income rates: that will only discourage investment without increasing his revenues: the increase in rates is bound to be offset by the  greater incentive to under report incomes.”

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