July 17: Economic Advisory Council in its report to Prime Minister warned the government against its rising expenditure and the consequent revenue deficit which continues to be high in spite of the commitment of the government to reduce it and whatever reduction has taken place is due to tax collection and benign interest rates and not because of government expenditure cut.
Council said that it is unlikely to be eliminated by 2008-09 in spite of the government’s target to bring it to zero by 2009 as the six pay commission’s recommendations are likely to increase central government’s expenditure. On the question of revenue deficit Rangrajan pointed to the off budget liabilities which constitute 2% of GDP.
According to the estimates of the council, fiscal deficit is estimated to be 3.3% of the GDP and revenue 1.5% of the GDP in 2007-08 and aggregate fiscal deficit of the center and states will stand 5.2% of GDP less than the estimated one.
This is to be known that Economic Survey also stressed on the cut of wasteful expenditure by government. Survey pointed out that fiscal consolidation is impossible until government puts a check on its expenses.
Presenting overall view of economy of the current fiscal year council projected the economic growth rate at 9%. Council Chairman C Ranngrajan says that kindly monsoon and external conditions will be helpful to attain 9% growth rate. Report projected farm sector’s growth at 2.5%, industrial growth rate at 10.6 and that of service sector at 10.4 %.
“The goal of 9% growth is possible due to strong fundamentals of the economy even if central bank applies some monetary measures” says council member.
On inflation chairman said that it depends on petroleum prices. Lower prices of petroleum products will keep the inflation low.
Capital inflow estimates stand at $15 billion. But chairman see this flood of capital inflow as a challenge and advises to absorb it in reserves and certain sectors of the economy hinting at the real estate rather than putting restrictions on it.
He suggested a triplet of solution for investment management. First the appreciation of rupee to affordable limits, absorption of inflow into reserves and encouragement of overseas acquisitions that is a policy of capital outflow and dealing of external borrowings with scrutiny.
He further added that equity investment involves risk but still necessary for inflow. These are the things not disposable at will. What can be done is that external debt should be discouraged.
Rangrajan also stressed that over all growth of the economy can be accelerated or sustained only when farm sector and power sectors register high growth.
|
|
Comments:
