Small landholdings make acquisitions costlier

Dec 14 2012, 20:54 IST
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SummaryIf recent numbers about the state of the Indian economy are any indication, then all is not well.

As per the Land Bill, govt will not only have to pay several times the cost of the land, but also R1.36 lakh for the displaced household and R5 lakh for sustaining livelihoods

If recent numbers about the state of the Indian economy are any indication, then all is not well. Growth of Indian economy slowed down to 5.3% in the third quarter of 2012, a nine-year low. Savings are falling, and so is investment. In September, the index of industrial production (IIP) fell by 0.4% from a year earlier. Exports fell for the sixth months in row, taking the October trade deficit to a 12-month high. In November, foreign exchange reserves dipped to $293.6 billion, down by $20.32 billion compared to a year earlier.

Gauging in terms of these base indicators, there is a clear indication about the economy slowing down and there is a dearth of private investment. In 2011-12, out of the targeted budgeted receipt of R40,000 crore from PSU disinvestments, the government was able to garner only R13,894 crore. This financial year, the target is R30,000 crore and we are yet to cross the R10,000 crore mark, and this includes the receipt from the 2G auction where the government has managed to sell only 22 out of the 122 licenses. Even with FDI in multi-brand retail sailing through the winter session of Parliament, it will be interesting to see how many eventual takers emerge. The euphoria surrounding the big-bang reforms announced in October seems to have been short-lived.

Now that we have a problem, and the government is finding it hard to manage its fiscal deficit, proper policy measures should be taken to fix it. It is to be noted that just before the UPA government took over in 2004, the fiscal deficit was 3.8%. During fiscal 2011-12, the fiscal deficit shot up to 5.8%. For fiscal 2012-13, the government plans to borrow R5.69 trillion to further its development agenda. This borrowing is based on the assumption that the economy will grow at 7.6% with a lower inflation of 6.5%, which is unlikely to happen.

Like personal finance, control of government finance can be done through innovative policy design. To maintain a 6%-plus growth rate, the government should act as a facilitator, assisting growth of manufacturing and services sector, with an eye on absorbing excess labourers from the shrinking agricultural sector. However, some faulty policies are coming in

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