Self-pat on the economy in the wake of a ballooning fiscal deficit and that too from the Prime Minister, Manmohan Singh, sounds no less than a pre-electoral hoopla. While Singh maintained an economic growth of 9%, he forgot to mention that the stimulus package that aided GDP numbers. He however, admitted taming inflation was indeed a setback.
Addressing a press conference in New Delhi, Singh said: “During my first term in office, India witnessed for the first time in its recorded history a sudden acceleration of economic growth to 9%…We have not been as successful in controlling the persistent inflation as we would have wished.”
Experts, meanwhile, believe that the growth was not real growth but rather an induced one. It was the stimulus package that was announced three tranches between December 2008 and January 2009, which led to the growth in these years.
Also, with about Rs 50,000 crore unleashed into the economy – as a result of the stimulus – there was an unprecedented rise in inflation.
Former finance minister and BJP leader, Yashwant Sinha told dna, “When you unleash so much cash in the system and that too on non-capital expenditure, you are yourself creating space for inflationary pressure.
The government’s biggest mistake was that it did not announce the road-map for withdrawal of the stimulus.”
Interestingly, the inflation and food price inflation are still a problem for the economy. As Sinha puts it, the country is in a vicious cycle of inflation, high rates, yielding in low investment.
So while, the economy really grew at 9% in the 2010-11, the country is staring at a growth rate of 4.5%-5% in the current financial year.
Also, all does not seem to be well on the fiscal deficit front as well. The country has touched 94%(Rs 5.1 lakh crore) of the budgeted deficit of 4.8% of the GDP by November itself.
This is a result of a variety of reasons, argue experts.
“Fiscal deficit arises when the government’s expenditure exceeds its income. The year, 2013, was a difficult one for the Indian economy and 2014 is not expected to be substantially different. Weak revenue collection amid a slowing economy, inability to push divestment and high subsidy are some major reasons for such high deficit,” says Rakesh Nangia managing partner of tax consultancy firm Nangia and Co. Singh also harped upon inclusive growth. Crisil, which launched financial inclusion index last year said, “Wide disparities exist across India and within states in terms of access to financial services. India’s six largest cities have 11% of the country’s bank branches. At the other end of the scale, there are four districts in the north-eastern region with only one bank branch each.”