Column: A rush of reforms needed

May 17 2014, 04:54 IST
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SummaryTo get back to 8%-growth, the new government must announce appropriate fiscal measures

The new government at the Centre will be facing many economic challenges in reviving economy and generating employment as economic indicators are not very encouraging. The general index of industrial production for the month of March 2014 is lower by 0.5% as compared to March 2013. The industries suffering significant decline are manufacturing followed by mining. In manufacturing sector, 12 out of 22 industry groups have shown negative growth in March 2014 as compared to March 2013. As per use-based classification, capital goods have recorded negative growth of 3.7% during FY14. The index of consumer goods, especially consumer durables is also lower than March 2013.

The other important indicator is the price level. Consumer price index (CPI), at 8.59% for April 2014 released recently has also shown rising trend as compared to 8.31% for March 2014. The inflation rate for rural and urban areas has also been high over the corresponding period. The rise in CPI is mainly because of milk and milk product, fruits and vegetables, cereal and cereal products, and clothing and bedding. The combined weightage of these items is more than 33% of the total, in CPI. There is also significant state-wise variation in inflation as measured by the CPI. Illustratively, Tripura records 20.1% inflation while Manipur of 5.3%. The Wholesale Price Index shows a moderate rate of inflation at 5.20% for April 2014 but the stress points continue to be cereals, fruits, milk, egg, meat and fish, and potatoes.

On the fiscal front, in general, India has been recording a gross fiscal deficit of 4.5% and above for the last few years. Though in FY14, according to revised estimates, the ballooning deficit has been contained at 4.6%, the quality of fiscal adjustment needs improvement. Gross tax revenue has recorded a short-fall, mainly on the account of lower collections under indirect taxes consequent to industrial slow-down, lower imports and lower growth in services. Also a sharp cut down in Plan expenditure, particularly on revenue account, has been recorded. There has been sharp increase in subsidies especially on account of Food security bill but other non-Plan expenditure has been curtained under the fiscal austerity drive.

In view of the global situation as well as research at RBI, real GDP growth is projected to be around 5.5% in 2013-14. In view of the economic trend globally, sustained revival in industries, exports and

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