Finance Minister P. Chidambaram, addressing the sixth meeting of the Financial Stability and Development Council (FSDC) as part of pre-Budget consultations, highlighted the efforts being made to turn the economy around and create a more investor-friendly climate. He further reiterated the government’s firm resolve on “observing the path of fiscal consolidation and imposition of fiscal targets and policies that will make necessary fiscal correction needed for the economy and take the economy back to the path of higher growth.” He also informed members about the steps to encourage foreign flows into India and provided reassurance on the positive investment climate.
THE BACKGROUND
News relating to the economy of the country does not offer any rosy picture. Rather the picture we are getting is bleak. The International Monetary Fund (IMF), which had earlier estimated 4.9% growth for India in 2012, has now forecast India growing at 4.5%. This is much less than the forecast for other ASEAN countries such as Indonesia and the Philippines, and even Bangladesh. The IMF world economic outlook update showed the ASEAN 5 region comprising Indonesia, Malaysia, Philippines, Thailand, and Vietnam growing by 5.7% in 2012. Their interest rates are lower compared with India and much lower than what they were at the time of Lehman crisis. Their exports are growing, while Indian exports are seeing a steady contraction. The IMF, which had earlier estimated 4.9% growth for India in 2012, has blamed the country’s poor showing on weak investments and warned that, unless reversed, this could cast a shadow over future growth too. In tune with the projection by IMF the Central Statistics Office (CSO) of India projected the growth of GDP in 2012-13 will be 5%, which is a sharp decline from the earlier projection of 6.2%. This would be the lowest growth of the decade. The performance of all major sectors, manufacturing, agriculture and service, is poor.
THE OVERVIEW
The Aam Aadmi knows that things are in bad shape. He knows this without any recourse to statistics and projections because he is at the receiving end of the adverse economic conditions. Manufacturing, agriculture, service sector and export performance, everything that matters, is going south. This is despite the fact that our finest brains of economics are at work as Prime Minister (PM) and Finance Minister (FM). Both are considered embodiments of high integrity who are not corruptible. Thus neither ability nor honesty can be doubted. We are suffering in spite of these. One may notice that of late FM and the Deputy Chairman of Planning Commission are using terms like fiscal consolidation and investment as the panacea. We will see how these concepts are translated into practice in the next budget. Fiscal consolidation means that the government is serious about reducing deficits and accumulated debts. Further the government is talking about increased inflow of investment in the economy. In other words, a mechanism is required whereby further investment in the economy is achieved without further debts. The government should go for equity based investment and participatory financing, resisting any further debt. We are already indebted too much. No fiscal consolidation is possible otherwise.