Trillion dollar question

Updated: Mar 31 2007, 05:30am hrs
BEFORE the next general election comes round in 2009, Indias GDP would cross $1 trillion at current prices. This presumes that the economy continues to grow at 9% annually. That is a fabulous size for an economy. To put it in perspective, India took about 25 years to grow from $29 billion to now. But will add another trillion dollars just by 2015. Thats the awesome power of growth. It is also, or ought to be, a sober realisation of the responsibilities that such size put on the government of the day in its conduct of economic policy. While a trillion-plus GDP grants more funds for policies to redress human deprivation (simply sticking to current allocation percentages could release vast sums), there is an equal need to be careful that growth does not suffer on account of misconceived programmes that the competitive climate of political rhetoric may try bringing into force.

These questions are important ones at this juncture. Take the fiscal scenario. The targets set by the Fiscal Responsibility and Budget Management Act will have run their course by 2009. But so far, the UPA government, while adhering to the Act, has given no indication if the constraints will continue to operate subsequently. On current indications, the government is straining at the Acts reins to go into fiscal profligacy mode. This would be a big error.

Look at the current level of public debt, which is about 80% of GDP. Public debt swells when the government contracts obligations like guarantees on loans raised by state entities, takes on repayment obligations for social sector schemes, and so on. Obviously, if let loose, the huge size of debt on a base of $1 trillion plus could send the economy twirling into a severe debt trap. Similarly, the fondness for public investment at the expense of restraints on the revenue deficit can injure growth prospects. Much of the current growth story owes itself to the space vacated by the government for private sector investment, which is vastly more efficient in multiplying money and raising the quality of citizens lives. By restating its commitment to the Act, the government should make it clear that it has the economys best interests in mind.