The government needs to take hard decisions like deferring the Food Security Bill if it wants to succeed in controlling the deficit and improving investor sentiment, feels Rajiv Kumar, economist and former secretary general of Ficci. Kumar believes that policy decisions in the Budget 2013-14 would be critical for economic growth:
There is still very little by way of actual evidence that the government will be successful in bringing the burgeoning fiscal deficit on the path for achieving the FRBM targets as suggested by the Kelkar Committee. It is clear that investor will wait for real improvements in the fiscal situation to assure himself that the government’s action matches its words.
On fiscal deficit
Ground realities do not auger well for achieving the revised target of 5.3 per cent of the GDP. The latest fiscal deficit estimates released by the government for October-end would suggest huge amount of caution in raising expectations on this front. In the seven months (April to October) estimated revenue deficit is already 81.4 per cent of the Budget Estimate compared to 79.1 per cent a year ago. While the fiscal deficit is 71.6 per cent of the Budget Estimate as compared to the 74.4 per cent last year, it is still much above the five year moving average of 56.6 per cent. Clearly, the fiscal situation is way out of whack and would require some exceptional measures to bring it back in control. Revenue receipts are lower in the seven months at 43.2 per cent as compared to 45.3 per cent in 2011-12. According to the mid-year economic review, revenue receipts in the first half of this year were lower than the five year moving average. The lower rate of growth came despite a huge decline in revenue receipts in the same period last year. The Mid Year Review also points out that, “The performance in the first half of the fiscal year 2012-13 does not comply with any of the targets in respect of the benchmark of non-debt receipts, fiscal deficit and revenue deficit.”
Betting on growth
Recent government statements point to a high dependence on disinvestment receipts for raising revenues in the last quarter of this fiscal. The success will be determined by the prevailing sentiment in the capital market. The RBI can help by cutting interest rates. The government faces a Herculean task and we must all wish it the best. The UPA