ECONOMY NEEDS TO CUT WASTEFUL EXPENDITURE, SUBSIDIES AND DEFICIT TO GROW AT A SUSTAINED 9% Rate
- Expenditure is the other malign element in the mix: the budgeted target of 12.58 lakh crore will be exceeded significantly even after the finance ministry’s year-end efforts to defer some expenses or camouflage them with accounting sleight of hand.
- The third toxic ingredient is gross tax revenue that is likely to miss the budgeted target of . 9.32 lakh crore as industrial growth dips. Advance tax receipts are already behind target and the slowdown in Q3 will impact receipts as the financial year closes.
- Two of the three key expenditure items where cuts are necessary remain politically sensitive: subsidies and government overheads. Subsidies swallow up . 1.44 lakh crore annually. Salaries and overheads of 60 lakh central government employees eat up a chunk of non-Plan expenditure (. 8.16 lakh crore). Both can be cut but neither will be. The subsidy bill for 2011-12 is, instead, likely to overshoot the budgeted target by at least. 80,000 crore on account of food, fertilizers and petro products.
- The third entrenched expenditure is the interest outgo of . 2.67 lakh crore, a reflection of past fiscal profligacy that has sent external and public debt ballooning to over . 50 lakh crore.
- Hit by a falling rupee, nearly 85% of the country’s estimated trade deficit of $150 billion for 2011-12 is on account of energy (oil and gas) imports.
- India’s current account deficit in 2011-12 is likely to exceed $54 billion — well over the targeted 3% of GDP — as FDI/FII inflows slow down.
- Indians over-invest in non productive assets like gold as a hedge against inflation and under-invest in productive financial assets.
- The eurozone crisis, monetary policy miscalculations and political populism have combined to shave more than 1.5% off estimated GDP growth this year.
