Down but not out

Font Size

Print

Feedback

Email

Discuss

: cannot deny the graveness of the situation, there are some redeeming features that we must recognise. Current inflation is being driven largely by price pressures in a few commodities where markets have overheated globally. It is not the result of domestic excess demand and is certainly not broad-based.

As the uncertainty in global financial markets abate, global commodity prices are likely to moderate to more sensible levels and this will translate quickly into lower domestic inflation.

The need to hold the price-lines of key commodities like oil and subsidise producers has raised concerns about our fiscal health. The threat of rising subsidies is coupled with a possible slowdown in revenue collections that widen the fiscal gap. These fears are certainly not baseless.

However, one must recognise that rapid consolidation over the last few years has brought the consolidated fiscal deficit (centre and states) down to around 6% from 10% at the beginning of the decade. This has also reduced the quantum of the government’s internal liabilities sharply. Thus the headroom for allowing some degree of fiscal ‘deterioration’ is certainly more than in the past. Infrastructure investments appear to be on track driven by both increase in government expenditures (Bharat Nirman, etc) and private initiative (ports, airports).

India’s structural supports and inherent resilience is pitted against the shocks emanating from the global economic environment. However the likely prognosis is that we are down but certainly not out.