Paradox to have entrepreneurs but not high economic growth: Jalan

Former RBI governor also points to number of scams the country has seen

Former RBI governor Bimal Jalan has said that it is a paradox that India could not sustain the high growth rate the country experienced in the 2004-09 period, with the same people and the same entrepreneurs.  

The annual GDP growth rate in the 2004-09 period was 8.5 per cent. But, the central statistical office’s GDP growth estimate for the financial year 2012-13 is five per cent.

Jalan said that after the growth has slowed down, the country witnessed many scams too. Bimal Jalan was speaking at a talk hosted here recently.

In fact, the growth witnessed a sharp decline in 2008-09 itself to 6.7 per cent, from at least nine per cent growth in the precedeing three years. After that the growth did revive on a booster dose of the government--to 8.6 per cent in 2009-10 and 9.3 per cent a year later. But, that could not be sustained and the growth fell again to 6.2 per cent in 2011-12. For 2013-14, the budget had assumed the growth of 6.4 per cent.

Shankar Acharya, Honorary professor at Indian Council For Research on International Economic Relations (ICRIER), said the revenue deficit and fiscal deficit targets for the financial year 2012-13 are not ambitious enough. Shankar Acharya said though the revenue deficit is targeted to decline from 3.9 per cent in the Revised Estimate for 2012-13 to 3.3 per cent next financial year in the budget.  This is still three times of the figure (1.05 per cent) in 2007-08, he pointed out.

“The Finance Minister had promised to bring down the fiscal deficit to 4.8 per cent of the GDP, but this is also higher than (3.11 per cent) in 2007-08," he said.

At almost 5.8 per cent (for 2011-12), the Centre's fiscal deficit is among the worst among the BRICS nations. The projection for the current fiscal year is 5.2 per cent in the Revised Estimate.

He said that though no one is against food security, the government’s commitment to the proposed bill in this regard will amplify the long-term problem of entitlement expenditure growth and the containment of subsidies.

He said that in the financial year 2013-14, the economic growth is likely to be lower than 6 percent, the Centre's fiscal deficit near 5 per cent, and the current account deficit around 4 to 5 per cent.

“The policy priorities should be to reduce the growing fiscal deficit, increase the petroleum, oil and fertilizer prices, and slow down on the entitlement programs. The government should resurrect reform through implementation of FDI in retail and other sectors, and push the pending laws on insurance, banking and pension. The government should restore investor confidence through reversing the bad tax measures of 2012-13 budget,” Shankar Acharya said.

Then finance minister Pranab Mukherjee brought retrospective amendments to Income Tax Act and the General Anti-Avoidance Rules (proposed to be implemented from April one, 2014), which evoked harsh criticism from investors.