With the fiscal year coming to an end, most of the data points are predictable, though the final numbers will be out in the next couple of months while the revisions could follow after a year or so. Can we draw a balance sheet of all that has been achieved and lost during the course of the year? In fact, being the terminal year of the government in power, it is normally judged on the most recent performance, in this case, that in FY14. How does the canvas look?
As can be expected, it is a collage of different colours and images indicating a mixed picture. The achievements have been significant given that while the year began on a neutral note, things deteriorated quite fast during May-September. However, the government was able to pull things through and reverse some of these adverse conditions to ensure that we got back to the starting point at least.
Four achievements stand out here. First, the fiscal deficit target has been achieved, and notwithstanding the compromises made, credibility has been restored at a time when virtually all the assumptions made when the Budget was being drafted were trashed as growth slowed down for the second successive year. Bettering the fiscal deficit target by 0.1% of GDP and keeping it at 4.6% was a positive.
Second, the aggressive combat against the CAD was another breakthrough at a time when conditions looked desperate. The relentless battle against gold imports was finally won and while a lot of support came from a sluggish economy which lowered demand for ‘non-gold, non-oil’ imports, the CAD would eventually be around 2% of GDP, which is remarkable. We are in a situation today where we can seriously reconsider gradually freeing the same. As a corollary, getting in big dollars by opening the swap window on FCNR (B) deposits was a strong supporting measure.
Third, the government has gradually shifted the price of diesel to near-market and more importantly, we have gotten used to it. If persevered with, we should be in a position to remove the subsidy element over a period of time. It has been done in a non-obtrusive manner which is important. Fourth, interest rates have been quite appropriately anchored around inflation to ensure that real interest rates are maintained which has been done under a lot of pressure given that the government was against such a move. RBI certainly stood