Before it relinquished power the UPA government had reigned in the fiscal deficit and the current account deficit. This was a major achievement of the former Finance Minister. After coming to power the BJP government stuck to the target of fiscal deficit set by the earlier government in the interim budget. The chance that this target will be achieved appears to be good.
On the current account deficit front there was a sudden spurt in gold imports in the recent period. But it has been pointed out that the period under consideration is the one immediately preceding the festival season and therefore the development need not be considered to be an underlying trend and therefore is not a matter of concern. However strict vigil will have to be placed on this issue and curbs on gold imports should not be diluted, if not strengthened.
While the twin deficits are under control the government was fortunate to see a steep fall in international crude oil prices which has tremendously strengthened the hands of the new Finance Minister. The decision of the former government to increase the price of diesel by 45 paise every month coupled with fall in global oil prices created an atmosphere favourable to decontrol of diesel prices. The government was prompt to grab this opportunity and has freed diesel price determination from administrative control.
The bonanza reaped by the government on the crude oil front is huge and will help it reduce the subsidy bill arising on account of petroleum products. Kerosene and cooking gas still continue to be provided with a huge subsidy. Of these kerosene is a poor man’s fuel (though widely used for adulteration with petrol and diesel) and there still remains a reasonable justification to maintain subsidy on it, though one can consider bringing down the quantum of this outgo. On the other hand there is absolutely no need to continue with subsidy on cooking gas and as was formerly done in the case of diesel a monthly increase in LPG price by a small quantum every month should be introduced so that over a sufficiently long period of time subsidy on this item can be eliminated.
The government has also taken a decision to increase the domestic price of gas though by an extent much smaller than the increase that was previously proposed by the UPA government. The new price fixed is inadequate to attract foreign direct investment in oil exploration and this would mean continuation of imports of gas from abroad at a high price. The only silver lining in this area is that the government has promised revision in gas prices every six months.
The Supreme Court had issued cancellation of coal blocks allotted to miners over a period of more than a decade. The government recently brought out an ordinance on how to deal with cancellation of these coal blocks allocated. While expectations were high that major reforms will be introduced in this area and also that we could possibly see denationalization of coal mining in the country nothing of the sort happened. What actually happened were only restricted moves to enable restarting of coal mining in the cancelled blocks and all those who had expected big bang reforms in the area were disappointed.
Production growth in the manufacturing sector of the economy continues to be sluggish despite of the great expectations from the new government. With prospects on the agricultural front also poor, as a result of the unfavourable monsoon, growth rate of the Indian economy during the current financial year is not expected to be strong. Economists are pitching for better growth prospects on the economic front during the next financial year.
Latest data indicate a slow-down in inflation both with respect to the consumer price index as well as the wholesale price index. Deceleration in price rise is also visible in the food sector and also with respect to fruits and vegetables. Even though the latest data with regard to prices bring some comfort, the improvements are to a certain extent on account of the base effect and may vanish during a later period. Moreover, prices of food articles in our country are so volatile that one has to be always on the guard in this respect and prospects can turn either-way even in a relatively short period.
The Modi government came to power with a lot of expectations. Expectations are high both from the side of domestic investors as well as from foreign investors. Both these sections are seen to be eagerly waiting for reforms.
The expectation is not about token reforms but huge big-bang reforms. But nothing has so far been forthcoming matching these expectations. However, the supporters of the regime have still not lost hope. But there is a point beyond which patience cannot be expected to last. Perhaps the next budget will be the point up to which expectations will last. Beyond that if things don’t move people may simply give up hope and even the booming stock markets may tumble.
P V Rajeev , former Economic Adviser of Government of India and worked as an Economist in Government of India for more than three decades. ...
