FINANCE MINISTER CHIDAMBARAM is being overwhelmed with multiple challenges as he gets ready to formulate Budget 2013-14 – reviving growth, containing inflation, reducing trade gap and current account deficit, removing stumbling blocks in infrastructure development, rejuvenating investment outlook, targeting poverty reduction, covering deficits in social sector performance, strengthening financial sector and what not. To cap it all there is a threat of downgrading from the international credit rating agencies.
Of course, such challenges tend to become ritualistic in nature, especially there have been when two or three crucial years of policy paralysis; and also in the wake of persistent hostile global economic environment. Perhaps never before was there such a constellation of formidable issues.
Effectively, Budget 2013-14 happens to be the chance for the UPA II government before the next general election in early 2014. It has an uphill task to prove its commitment to the implementation of pending reforms agenda; revitalise ‘animal spirit’ of investors; and ‘go for growth.’ Or in the usual quest for populism around this time, there would be the temptation to indulge in aggressive ‘social-welfare’ spending. In the long run such a strategy would be unsustainable and there would not be any political dividend to reap.
On the contrary, it is high time for the UPA II government to unveil its political maturity and sagacity through bold policy reforms. It is time to bite the bullet and administer the needed ‘bitter medicine.’ That’s the only way to restore the confidence of stakeholders in the future of our economy.
Here’s my wish list.
First, putting the fiscal house in order. There can be no further fiscal drift. The likely revised estimate of fiscal deficit to GDP ratio of 5.5 per cent in 2012-13 needs to be reduced to 4.5 per cent or even lower in 2013-14, and to 3 per cent thereafter by 2015-16. There must be a visible action plan. There is the need for a regular tracking of this target with month-on-month performance review of key budgetary data. It is also necessary to formulate monthly cash-flow system of budgetary accounting under major heads of receipts and expenditure.
All such information must also be made available in the public domain. Such rigorous scrutiny would send right signals, including to the RBI to move quickly towards softening of interest rates policy; and also avert the prospects of downgrading of country’s credit.