Cap on public debt

Long overdue, is the pleased reaction from experts.

It’s difficult to please economists, especially when the finance minister has to walk a tightrope to balance the pulls and pressures of a democracy and what prudent economics demands. Finance Minister Pranab Mukherjee may have managed to do just that, by quietly unveiling a new reforms agenda.

The biggest of this is a commitment to reduce public debt. The combined debt of the Centre and the states will be capped at 68 per cent of the gross domestic product (GDP) by 2014-15, as recommended by the Thirteenth Finance Commission. This is the first time the government will target an explicit reduction in its domestic public debt as a proportion of GDP.

‘‘The new debt cap is innovative. If implemented seriously, it could lead to genuine fiscal consolidation. It’s the most viable and desirable of all initiatives,’’ said HDFC Bank Chief Economist Abheek Buarua. Economists said unless interest payments were brought down, it would be difficult to allocate resources for other sectors. Interest payments have consistently squeezed developmental expenditure.

RPG Foundation president D H Pai Panandikar said Mukherjee has finally tried to address the issue of public debt. ‘‘Most finance ministers did not pay any attention to it. So, the fiscal deficit kept on increasing,’’ he said.

Similarly, economists and industry alike welcomed the proposed deregulation of the coal sector. The government plans to introduce a competitive bidding process for allocating coal blocks for captive mining, to ensure greater transparency and increased participation. Similarly, it will set up a Coal Regulatory Authority to create a level playing field in the sector, and facilitate pricing and benchmarking of performance.

Harry Dhaul, Director General of the Independent Power Producers Association of India, said this important step was long overdue. ‘‘This reduces the uncertainty and ad-hocism in the allocation of coal blocks. It will bring in transparency and a market mechanism, through which the government and the bidder would know the value of the asset,’’ Dhaul said. It would encourage only serious players to bid for blocks.

However, experts said the idea to create a Financial Stability & Development Council to monitor the economy would only mean duplicating effort and creating another layer of bureaucracy.