Beware of 2014 crisis: Basu

?The year 2011 has been an echo of 2008 when sovereign governments in US and Europe stepped in to rescue banks that were doing badly, which put all the money generated by the government to rescue corporates. So, the fiscal profile of US, Europe and Japan began to go down. Public debt to GDP ratios went up to 100% for Europe and 200% for Japan while it remained 45% for India,? he explained.

?Moreover, Spain, Italy and Greece were finding it difficult to borrow and were on the verge of default following which the European Central Bank (ECB) stepped in and lent $1 trillion to 800 banks, who, in turn, lent to governments. In the next three years, that is by 2014, it will be time to repay these loans. Since fiscal consolidation plans in these countries are poorly drafted, there could be another crisis coming,? Basu warned.

The chief economic advisor was in Pune to attend a workshop on `Indian Economy and Economic Survey’ organised by the Exim Bank and the ministry of finance.

To tackle the coming crisis, India must boost exports in the next two to three years, he said. ?At one point, China was the world’s workshop, which led to rising wages. India can come into the space vacated by China in manufacturing. A couple of policies would be needed to encourage this sector,? he said.

Another issue would be related to subsidy reforms, Basu said.

He said while there was a big governmental responsibility to reach out to the poor, there were unacceptably large leakages in delivering subsidies to the poor. ?Around 44% of the subsidy does not reach the poor and goes to higher priced markets. The government is serious about taking the next steps to give subsidies directly to the consumer instead of giving it through the public distribution system (PDS),? he said.

?There are about 5 lakh PDS stores across the country. If the consumer is allowed to purchase from any normal store through either a smart card or cash, he is ensured of better quality of food grains and would get it at the same price. This would also result in a cut in the large R60,000-crore subsidy bill,? he pointed out.

Basu said that investment in infrastructure was also important and improvements could be seen in India in the next couple of years. The tricky question here is of the government raising support for infrastructure investment. The Economic Survey, he said, contains a discussion on how to break the deadlock.

The global slowdown is very real and India is replicating this pattern, he said. ?Although the fiscal deficit has become large, the government has refrained from tightening the economy too much. The target next year would be to push hard for fiscal consolidation and prepare for fiscal contraction.?

This could create pain, he said, adding it was necessary. Awareness of corruption, in itself a good thing, is preventing the bureaucracy from taking decisions, he said.