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Fiscal Expansion of India


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Fiscal Expansion of India

  1. 1. Fiscal Expansion – A necessity to sustain India’s growth momentum
  2. 2. India – On a high <ul><li>One of the fastest growing economies in the world </li></ul><ul><li>Appreciating Rupee </li></ul><ul><li>Low nominal interest rates </li></ul><ul><li>Controlled Inflation </li></ul><ul><li>Booming services and retail sectors </li></ul><ul><li>Rising foreign exchange reserves </li></ul><ul><li>Increased FII and FDI </li></ul>05/28/09
  3. 3. A Reality Check <ul><li>Agriculture contributes only 20% to GDP </li></ul><ul><li>Agriculture growing at meager 2% </li></ul><ul><li>HDI – a poor 127 in 2005 </li></ul><ul><li>Alarming poverty levels – 26% still below poverty line ! </li></ul><ul><li>Education : Adult Literacy Rate only 61 % ! </li></ul><ul><li>Mortality rate…health issues “55 deaths per 1000 live births !!” </li></ul>05/28/09
  4. 4. The SAD part of the story 05/28/09
  5. 5. Food for Thought <ul><li>Are we investing enough in critical areas of agriculture, health, education etc? </li></ul><ul><li>Is too much importance given only to fiscal deficit reduction? </li></ul><ul><li>Financial discipline is essential, but, can it be at the cost of the growth of the economy? </li></ul><ul><li>What is more relevant in the Indian context – the outright reduction of the deficit or concentrating on all-inclusive growth? </li></ul><ul><li>YES…It is questions like these which compel us </li></ul><ul><li>to visit this debate between fiscal restraint and </li></ul><ul><li>fiscal expansion in the Indian context </li></ul>05/28/09
  6. 6. Fiscal Restraint – Its impact <ul><li>Reduced government investment in agriculture </li></ul><ul><li>which supports 67% of our population </li></ul><ul><li>Reduced government expenditure on social sectors like education, health </li></ul><ul><li>Greater hardships for the poor </li></ul><ul><li>Higher taxation rates is a real burden on the middle class population </li></ul><ul><li>Inclusive growth only remains a dream </li></ul><ul><li>Reduced investment on R&D </li></ul>05/28/09
  7. 7. Focus on Economic Reforms <ul><li>Tax Reforms </li></ul><ul><li>Some of the measures in the form of Direct and </li></ul><ul><li>Indirect taxes are:- </li></ul><ul><li>Varying rates of excise duties on different commodities </li></ul><ul><li>Personal tax reduced over a period of time </li></ul><ul><li>Custom duties have been significantly reduced </li></ul>05/28/09
  8. 8. Focus on Economic Reforms 05/28/09
  9. 9. Focus on Economic Reforms <ul><li>Public Sector Policy </li></ul><ul><li>Critical element of India’s reform agenda </li></ul><ul><li>Limited process of disinvestment of government equity in public sector companies </li></ul><ul><li>PSU’s have also resorted to capital markets to raise resources </li></ul><ul><li>The disinvestment helps provide non-inflationary </li></ul><ul><li>resources for the Government Budget, without </li></ul><ul><li>adding to the fiscal deficit in a way keeping the deficit in </li></ul><ul><li>control as well as bringing in more investment in PSU’s </li></ul>05/28/09
  10. 10. Focus on Economic Reforms <ul><li>Financial Reforms </li></ul><ul><li>Increase in Investments </li></ul><ul><li>Allocation of resources for efficient uses </li></ul><ul><li>Capital Markets – Regulation, Dematerialization, New Products, Risk Management </li></ul><ul><li>Banking Sector – Deregulation, Liberalization, Operational Freedom </li></ul><ul><li>Insurance Sector – IRDA Act, 1999 </li></ul>05/28/09
  11. 11. Govt Expenditure vs Poverty 05/28/09
  12. 12. Govt Expenditure vs Poverty 05/28/09
  13. 13. Our Stand-Point <ul><li>Inclusive growth requires huge investments in </li></ul><ul><li>agriculture, education, health, poverty alleviation </li></ul><ul><li>etc, the benefits of which can only be reaped after a </li></ul><ul><li>certain lag period. </li></ul><ul><li>We perceive Economic growth as the growth of </li></ul><ul><li>our industries, services and most importantly, </li></ul><ul><li>our people for which short term fiscal expansion </li></ul><ul><li>will not be a heavy price to pay. </li></ul><ul><li>  </li></ul>05/28/09
  14. 14. <ul><li>THANK YOU ALL </li></ul>05/28/09