Govt. warned against runaway expenditure

By Our Special Correspondent

NEW DELHI, SEPT. 10. Members of the Prime Minister's Economic Advisory today cautioned the Government against any runaway expenditure or investment in a bid to reverse the current economic slowdown, and said restraining the fiscal deficit of the Centre and the States was an equally important aspect of good economic management as pepping up demand.

The conclusions that came after the three and half hour meeting here included the formulation that the Government should only spend what has been budgeted for and not create any fresh deficits on any account.

Most of the economists who participated in the meeting differed with the official approach that public investment was the need of the hour, and that private investment could ride piggy-back on it. Instead, it was emphasised that the bulk of the investment should come from the private sector with public investment supplementing it.

To create the necessary atmosphere for new private investment, the Government was advised to proceed faster with the reforms, at least those included in this year's Budget. These include dismantling of the administered price mechanism for petroleum products, power sector reforms, amendments to the system of food procurement where the Centre's sole responsibility would be discontinued, reforms in the public distribution system and adjustments in user charges.

Similarly, to carry forward the reforms in an expeditious manner, the Government should try and forge a consensus not only with other political parties but must cover other constituents of the economy too.

Global slowdown

On the issue of the global slowdown, the economists felt it would persist for some more time. However, its impact on the Indian economy would be limited, except for exports and possibly the stock and capital markets.

The general consensus was that given India's share in the global economy, it would be possible to insulate it to a large extent and the focus should be on building on the inherent strengths of the domestic economy.

Briefing mediapersons after the meeting, the Finance Minister, Mr. Yashwant Sinha, said there were other suggestions as well such as privatisation of the public sector, downsizing of Government in line with the recommendations of the Expenditure Reforms Commission, launching of a massive food-for-work programme and further encouragement to investments in housing and construction activity.

It was also felt that the problems of the stock markets should be looked at in detail and that financial sector reforms should be put on the fast track.

General suggestions were also made on the ways and means of restoring investor confidence, containing fiscal deficit, improving the tax to gross domestic product (GDP) ratio, the possible stand India should take at the coming World Trade Organisation (WTO) meeting at Doha, etc.

The Government had taken note of these suggestions and the Prime Minister, Mr. Atal Behari Vajpayee, asked the Ministries concerned to look into them for early possible action, Mr. Sinha said.

Interest rates

The Reserve Bank Governor, Dr. Bimal Jalan, who also participated in the meeting, said there was a general discussion on the interest rate scenario and it was recognised that the nominal interest rates were coming down. There was a broad discussion on the fact that deposit rates in the country were still high, and it was also acknowledged that there was a feeling that these rates should be high.

The exchange rate policy was also discussed and it was felt that the current policy was adequate and should be continued in such a manner that the balance of payments position was managed well while insulating the economy from any adverse global impact, Dr. Jalan added.

Those who attended the meeting included Dr. Kirit Parekh, Dr. Amaresh Bagchi, Mr. Jagdish Shettigar, Dr. Rakesh Mohan, Dr. A. Vaidyanathan, Dr. Shankar Acharya, Dr. Ashok Lahiri and Dr. R. K. Pachauri. The special invitees included Mr. K. C. Pant, Mr. Murasoli Maran, Mr. Suresh Prabhu, Mr. Arun Shourie, Mr. Ajit Singh, Mr. Arun Jaitley, Mr. B. C. Khanduri and Mr. N. K. Singh.

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