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Savings only can help fuel growth, says FM

Special Correspondent

`States must adopt suitable policies to encourage savings'

KOLKATA: Favouring "ideological neutrality'' in matters relating to investment and growth, Union Finance Minister P. Chidambaram said here on Friday that it was not "ideology'' but "financial rectitude, fiscal prudence, savings channelised into investment by efficient financial institutions, moderate taxation and competition'' that could provide a sound economic framework for the country

The Centre was "doing its best to bring down the fiscal deficit'' and cut down on wasteful expenditure without which the savings rate could not grow, Mr. Chidambaram said while inaugurating the 105th annual meeting of the Bharat Chamber of Commerce.

"We have tried to create an environment where public and private investment can be enhanced. More growth will come only after more investment and more investment will come only if there are more savings. The States must adopt policies that encourage savings which would then be channelised into investment,'' the Minister said. "Under the 12th Finance Commission dispensation, the States have a golden opportunity to set their fiscal houses in order,'' the Finance Minister said. "It has recommended a road map for the States to improve their fiscal situation,'' he added.

Debt-stressed States

"The financial health of the States is fundamental to the financial health of the country.'' In this context Mr Chidambaram asked the chamber to urge the West Bengal Government with its "unsustainable'' fiscal health to take steps for a turnaround as suggested by the 12th Finance Commission.

"West Bengal is yet to draw up its own fiscal correction path... a large fiscal correction has to be made by the State. It is one of the more debt-stressed States with the proportion of the levels of both its revenue and fiscal deficits to the State Gross Domestic Product higher than that of the Centre.'' "The 12th Finance Commission has been extremely generous [to the States],'' the Minister said. It projects a 30 per cent increase in Plan assistance under all heads to West Bengal over that of the previous Commission. This would mean that the State would be receiving Rs. 50,877 crore in 2005-10. Countering the argument that "farm credit remains only on paper,'' Mr. Chidambaram said total farm credit had increased substantially over the past year and the Centre was determined to "achieve the target of Rs. 1,41,000 crore in the current year, an increase by 30 per cent over the last year.''

The Minister, however, regretted that "nobody wants to invest in power because of a weak-kneed approach to the problem of power theft'' which had forced State electricity boards into the red. "Without power how do you build an economy?'' Mr. Chidambaram asked.

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