And taking stock
The finance minister is happy enough with the economy as the fiscal rolls out, but much of the business fraternity does not seem to share his optimism. With inflation low, oil prices down, rupee reportedly stable, and remittances strong as ever, Dar sb has convinced the IMF, at least, that we are pretty much where we should be at the turn of the fiscal year. However, if the economy is so rosy, why has the growth rate turned out a full percentage point lower than the projection? And why have we, once again, had to convince the Fund about our inability to meet the deficit target?
Also, growth does not really seem on the upswing. When the government has to resort to borrowing to shore up its books ahead of the budget, and also to bolster the currency, growth cannot be on an upward trajectory. That is true especially when trade is not picking up – it might even decline as the GSP Plus facility becomes suspect – and there is no progress on expanding the tax net. And did the foreign injection, and now last minute loans, really help the rupee? It certainly did not help exports when the deficit should have been an overriding priority.
The government’s economic program must shift focus from conservative cost-cutting to GDP expansion. Without foreign investment, and with the local private sector given little room in bank borrowing, there is little chance of triggering the employment multiplier without a robust, expansionary fiscal policy. That does not mean, of course, that issues of revenue generation from taxes and trade will not remain significant. The government has a lot of ground to cover, and the next budget must reflect this concern. But if the finance minister is happy with the work done so far, and might want to repeat his performance next year, we can expect further downward revision of the growth rate.
