- And still the deficit
Just because India’s war hysteria dominated the news cycle for a few days does not mean the main existential problem of the moment has gone away. And it’s not war, but the economy, that remains the most pressing concern. That is precisely why lawmakers expressed serious worry about the rising deficit and falling revenue at a meeting of the national assembly’s standing committee on finance and revenue on Wednesday. It seems that despite a good 36pc fall in the development program the fiscal deficit could well exceed seven percent of GDP by the end of the fiscal. And since the government has resorted to unprecedented borrowing in the last seven months or so, it is pretty clear that public finances will remain a big problem for some time to come.
Add to that the 10pc rise in petroleum prices, effective March 1, and the lot of the common man also becomes pretty obvious. Petroleum price increases — since fuel is the basic requirement for all sorts of businesses as well as households — invariably lead to a second round of inflation; which is how producers, etc, plug their own revenue gaps. Then there are the spending and subsidy cuts, which also hits the middle and lower income groups particularly hard.
Very early in this electoral cycle, then, we have an environment of stagnant earnings, low growth, and rising prices – text book stagflation. Even more worryingly, it doesn’t seem the government has a cohesive plan to sort out the mess. They have promised research-based taxation for at least six sectors with high revenue potential and all that, but the proof of the pudding will still lie in the eating. Until the numbers change the economy, especially the deficit, will be the number-one problem.