Fiscal Expansion – A necessity to sustain India’s growth momentum

India – On a high One of the fastest growing economies in the world Appreciating Rupee Low nominal interest rates Controlled Inflation Booming services and retail sectors Rising foreign exchange reserves Increased FII and FDI 05/28/09

One of the fastest growing economies in the world

Appreciating Rupee

Low nominal interest rates

Controlled Inflation

Booming services and retail sectors

Rising foreign exchange reserves

Increased FII and FDI

A Reality Check Agriculture contributes only 20% to GDP Agriculture growing at meager 2% HDI – a poor 127 in 2005 Alarming poverty levels – 26% still below poverty line ! Education : Adult Literacy Rate only 61 % ! Mortality rate…health issues “55 deaths per 1000 live births !!” 05/28/09

Agriculture contributes only 20% to GDP

Agriculture growing at meager 2%

HDI – a poor 127 in 2005

Alarming poverty levels – 26% still below poverty line !

Education : Adult Literacy Rate only 61 % !

Mortality rate…health issues “55 deaths per 1000 live births !!”

The SAD part of the story 05/28/09

Food for Thought Are we investing enough in critical areas of agriculture, health, education etc? Is too much importance given only to fiscal deficit reduction? Financial discipline is essential, but, can it be at the cost of the growth of the economy? What is more relevant in the Indian context – the outright reduction of the deficit or concentrating on all-inclusive growth? YES…It is questions like these which compel us to visit this debate between fiscal restraint and fiscal expansion in the Indian context 05/28/09

Are we investing enough in critical areas of agriculture, health, education etc?

Is too much importance given only to fiscal deficit reduction?

Financial discipline is essential, but, can it be at the cost of the growth of the economy?

What is more relevant in the Indian context – the outright reduction of the deficit or concentrating on all-inclusive growth?

YES…It is questions like these which compel us

to visit this debate between fiscal restraint and

fiscal expansion in the Indian context

Fiscal Restraint – Its impact Reduced government investment in agriculture which supports 67% of our population Reduced government expenditure on social sectors like education, health Greater hardships for the poor Higher taxation rates is a real burden on the middle class population Inclusive growth only remains a dream Reduced investment on R&D 05/28/09

Reduced government investment in agriculture

which supports 67% of our population

Reduced government expenditure on social sectors like education, health

Greater hardships for the poor

Higher taxation rates is a real burden on the middle class population

Inclusive growth only remains a dream

Reduced investment on R&D

Focus on Economic Reforms Tax Reforms Some of the measures in the form of Direct and Indirect taxes are:- Varying rates of excise duties on different commodities Personal tax reduced over a period of time Custom duties have been significantly reduced 05/28/09

Tax Reforms

Some of the measures in the form of Direct and

Indirect taxes are:-

Varying rates of excise duties on different commodities

Personal tax reduced over a period of time

Custom duties have been significantly reduced

Focus on Economic Reforms 05/28/09

Focus on Economic Reforms Public Sector Policy Critical element of India’s reform agenda Limited process of disinvestment of government equity in public sector companies PSU’s have also resorted to capital markets to raise resources The disinvestment helps provide non-inflationary resources for the Government Budget, without adding to the fiscal deficit in a way keeping the deficit in control as well as bringing in more investment in PSU’s 05/28/09

Public Sector Policy

Critical element of India’s reform agenda

Limited process of disinvestment of government equity in public sector companies

PSU’s have also resorted to capital markets to raise resources

The disinvestment helps provide non-inflationary

resources for the Government Budget, without

adding to the fiscal deficit in a way keeping the deficit in

control as well as bringing in more investment in PSU’s

Focus on Economic Reforms Financial Reforms Increase in Investments Allocation of resources for efficient uses Capital Markets – Regulation, Dematerialization, New Products, Risk Management Banking Sector – Deregulation, Liberalization, Operational Freedom Insurance Sector – IRDA Act, 1999 05/28/09

Financial Reforms

Increase in Investments

Allocation of resources for efficient uses

Capital Markets – Regulation, Dematerialization, New Products, Risk Management

Banking Sector – Deregulation, Liberalization, Operational Freedom

Insurance Sector – IRDA Act, 1999

Govt Expenditure vs Poverty 05/28/09

Govt Expenditure vs Poverty 05/28/09

Our Stand-Point Inclusive growth requires huge investments in agriculture, education, health, poverty alleviation etc, the benefits of which can only be reaped after a certain lag period. We perceive Economic growth as the growth of our industries, services and most importantly, our people for which short term fiscal expansion will not be a heavy price to pay. 05/28/09

Inclusive growth requires huge investments in

agriculture, education, health, poverty alleviation

etc, the benefits of which can only be reaped after a

certain lag period.

We perceive Economic growth as the growth of

our industries, services and most importantly,

our people for which short term fiscal expansion

will not be a heavy price to pay.

THANK YOU ALL 05/28/09

THANK YOU ALL