Financial Daily from THE HINDU group of publications
Tuesday, Sep 30, 2003
Financial Daily from THE HINDU group of publications Tuesday, Sep 30, 2003 |
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Industry & Economy
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Economy Hard decisions vital to curb rise in debt-GDP ratio: Rangarajan Our Bureau
New Delhi , Sept 29 DRAWING attention to the adverse impact of a large fiscal deficit on the economy, the Chairman of the Twelfth Finance Commission (TFC), Dr C. Rangarajan, has underscored the need for some "hard decisions" to arrest the persistent rise in the debt-gross domestic product (GDP) ratio. Inaugurating the two-day conference on "Issues before the Twelfth Finance Commission" organised by the National Institute of Public Finance and Policy (NIPFP) here, Dr Rangarajan also highlighted that the current trends indicate that the economy is "far from" achieving an overall fiscal deficit target of 6.5 per cent of GDP in 2004-05. The Eleventh Finance Commission (EFC) had suggested that 6.5 per cent level could be a desirable target for overall fiscal deficit in 2004-05. The combined fiscal deficit of the Centre and States during 2002-03 was estimated at more than 10 per cent of GDP. "The overall debt-GDP ratio was supposed to be brought down to 55 per cent from a level of 65 per cent in 1999-00, i.e. a fall of 10 percentage points. As per the latest data, the combined debt-GDP ratio at the end of 2002-03 is estimated at 76 per cent. Thus, instead of falling, the debt-GDP ratio has risen substantially," Dr Rangarajan said. He also underscored the need for separate studies on each State to arrive at an appropriate level of fiscal deficit and sustainable debt. "Fiscal deficits of the Central and State Governments need to be brought down in a calibrated manner by augmenting revenues and pruning expenditure," Dr Rangarajan said. He promised that the TFC would evolve a scheme of fiscal transfers that would give due weightage to the available resources of the Centre and the States and the demands on these resources by both the Centre and the States. "The correction on vertical and horizontal imbalances has to be done within a framework of fiscal prudence," he said. He hoped that State Governments would follow Karnataka, Maharashtra and Punjab in imposing explicit self-discipline on themselves through fiscal responsibility and management legislations. Even though a target for fiscal deficit relating to GDP has not been specified in the Centre's Fiscal Responsibility Act, Dr Rangarajan held that this might be indicated in the rules to be framed in relation to the Act. Citing the Centre's Fiscal Responsibility and Management Act, Dr Vijay Kelkar, Advisor to the Union Finance Minister, highlighted that the political class has already empowered the Government for taking action on fiscal consolidation. "The Centre's revenue deficit will have to be eliminated by 2007-08," he pointed out.
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