Inflation, fiscal consolidation major challenges for govt

Comment: Ajit Ranade

The Economic Survey for 2010-11 confirms a relatively optimistic picture of the Indian economy. It is a statutory report card presented to Parliament and says that growth is near 9 per cent, and likely to accelerate next year.

The report says both savings and investments will rise in the coming years mostly due to demographic factors. The slowdown in industrial growth is acknowledged, but is deemed to be temporary. The problem of general inflation looms large in the Survey, though India seems to have done better than many developing countries. The Survey seems to support the view that rising incomes and purchasing power have added to demand pressures and, hence, inflation. Surely, we are not going to curb rising purchasing power to control inflation!

Apart from inflation, the Survey identifies fiscal consolidation as a major challenge facing the government. This year’s fiscal deficit will be lower than budgeted, but continuing this performance next year may not be easy. The rollout of the new Direct Taxes Code as well as the Goods and Services Tax will help but what is needed badly is reform on the expenditure side.

Ajit Ranade,
Chief economist, Aditya Birla Group