A team of analysts from the International Monetary Fund is in India this week as part of the annual Article IV consultations with the union finance ministry and the Reserve Bank of India. They have reportedly expressed scepticism about the fiscal adjustment undertaken by the finance minister in the course of fiscal 2000-01 and promised in fiscal 2001-02. The latest available data on direct tax collections suggest that actual estimates of revenue in 2000-01 may fall short of revised estimates. This gap between `actual' and revised estimate has been a regular feature of union budgets for some time now, making a mockery of the budgetary process. The Fund's scepticism on fiscal adjustment is on many counts. First, it has always looked at the gross fiscal deficit of the central and state governments and this does not make for a pretty picture. Second, the Fund has for some time now stopped accepting receipts from disinvestment as a revenue receipt in estimating the fiscal deficit.Finally, it may be sceptical about the projections made both on revenues and expenditures, and perhaps on national income estimates as well. Not surprisingly, despite the 0.4 per cent of GDP correction in the fiscal deficit in 2001-02, compared to 2000-01, the Fund is likely to call for stricter fiscal discipline.
However, the finance ministry has its own argument. Stimulating growth this year is a more important objective than reining in the fiscal deficit, the Fund will be told. The economy needs a dose of pump-priming and if this is to be done at the cost of fiscal correction, so be it. After a decade of fiscal ups and downs along with growth acceleration and then deceleration, the jury seems to be out on the relationship between fiscal adjustment and growth. If building new highways is the only way of stimulating demand in the economy then the government cannot be obsessed with the fiscal deficit. While this is true, the government would be well advised to take the Fund's cautionary advice seriously, particularly when the economy seems to be on the brink of a phase of stagflation and there is still no sign of any significant easing of oil prices. In the realm of macroeconomic policymaking, the government's primary objective should be to avoid having to tap the IMF for funds. The best way to ensure that is to remainalive to cautionary advice from the Fund.
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
