Search the Internet          Tips  Sites: Finance, Investment

'The FM has done a good balancing act'

Sunil Kant Munjal

The finance minister has done a good job of addressing the slowdown in the economy and continuing with the reforms.

If he is able to implement the proposals he has outlined, he should be able to maintain the fiscal deficit below five per cent with a GDP growth close to seven per cent, which will be a step in the right direction.

The current deficit in the Indian economy is close to 15% if you add up the deficit of the central government, the state governments and the PSUs. This is an unsustainable level.

There are two ways to bridge this gap. One is to print extra currency, and the second is for the government to borrow more funds.

Thankfully, the government has stopped printing extra currency, but it continues to borrow to the extent that the current year's interest payment is more than Rs 900 billion.

Also, when the government borrows excessively, it makes funds that much more scarce for the private sector. It also increases the cost of funds for the latter.

Both have a negative impact on the consumer.

The cause for such a large deficit must be probed.

The Centre's decision to move out of the Public Distribution System will adversely affect those who cannot afford to buy essential commodities at market rates.

However, it is possible that those who accessed the PDS despite being able to afford the commodities at market rates can be identified and eliminated from the system to make it more effective and less prone to mismanagement.

Sunil Kant Munjal is managing director, Hero Cycles Limited

Budget 2001

Tell us what you think of this Analysis