Financial Daily from THE HINDU group of publications
Friday, Feb 21, 2003
Savings crucial to 8% growth Mr Pranab Mukherjee, former Finance Minister
THE 8 per cent economic growth rate set out in the Tenth Plan is not feasible unless incentives to savers are ensured in the Budget, since this order of growth entails that the domestic savings rate should be around 29 per cent, says the senior Congress (I) leader, Mr Pranab Mukherjee.
In a pre-Budget interview to Business Line, the former Union Minister for Finance and Commerce and former Deputy Chairman of the Planning Commission said: "A high economic growth rate requires high domestic savings and investment, and the latter will not come from heaven. Substantially it will come from domestic savings, and that is why the Planning Commission is saying that it will be 29 per cent from the existing 23-24 per cent. If you want to have this 5 per cent jump in domestic savings rate it is not possible unless you give incentives to the savers. It is as simple as that,'' Mr Mukherjee contends adding that "if they want to have higher growth and a projected rate of savings at 29 per cent, they must give incentives for savings and disincentives for expenditure".
"But unfortunately in the Budgets presented by the BJP Government the message was quite different. They hit the saving instruments by reducing the deposit interests, expecting that these savings could be invested in the equity which has not actually taken place," Mr Mukherjee said.
Stating that the Finance Minister's options were not wide but only "limited", Mr Mukherjee said that "one thing he could do which is against the very philosophy of this Government is to give incentives for savings. They are reducing the interest rate on savings instruments to what extent this will help borrowers is not known because lending rates have not fallen substantially".
Mr Mukherjee alleged: "For seven months this Government had a massive mobilisation in the border in the name of security just to win a provincial election and in order to create a war psychosis which they thought would help them win the election. Then, what type of trust can be placed in it to be prudent in fiscal management?''
Questioning the rationale of going in for higher economic growth, Mr Mukherjee said in order to achieve 8 per cent GDP growth, the investible resources needed would be 32 per cent of GDP." The track record of the BJP Government in the recent years is that they have not been able to reach the targeted growth rate, targeted revenue realisation; even their own Budget estimates have always fallen short of the actual realisation. They have never been able to raise the entire amount for development and Central Plan outlay," he added.
Keeping these parameters in view, he said, "What will be the outcome of the first two years of the Tenth Plan has already been determined by the level of investment in the previous two years, or in the last two years of the Ninth Plan because the time lag is about two to two-and-a-half years."
Mr Mukherjee maintained that the Plan panel was justified for a higher gross budgetary support (GBS) to fund the 2003-04 annual plan "because from the past experience whatever was being provided as GBS only that portion was being spent as internal and extra budgetary resources at the time of plan formulations have always been exaggerated and could not be reached by the State government or Central ministries subsequently. Hence, the important component for developmental expenditure is GBS and if there is a big shortfall in a single year to the tune of Rs 17,000 crore, no major breakthrough in the growth scenario can be visualised".
Mr Mukherjee noted that fiscal deficit cannot be reduced unless the Finance Minister finds ways to step up revenue realisation and adopts expenditure control.
But with committed expenditures, such as the interest burden and pension payouts, taking a major share the balance from current revenue (BCR) continues to be negative and escalating.
On disinvestment, he said, "if you dispose off capital assets to meet revenue expenditure, it is nothing but a foolish exercise". Finally, Mr Mukherjee noted that "8 per cent GDP growth is desirable and possible if the economy is managed properly. But this Government is incompetent to achieve a 8 per cent growth because it does not follow a consistent policy".
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