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Rediff.com  » Business » Caution on deficit welcome, but capex suffers

Caution on deficit welcome, but capex suffers

March 01, 2011 12:45 IST

This Budget is an interesting cocktail of growth orientation with inclusiveness and fiscal prudence. When one looks beyond the numbers, at the overall direction, there are distinct trends.

There is clear recognition by the polity that a nine-plus per cent growth rate is not sustainable without fiscal consolidation.

There is need to contain the fiscal deficit to 4.5 per cent, revenue deficit to 1.8 per cent and the debt to GDP ratio to 44.2 per cent in 2011-12.

Unfortunately, capital expenditure is bearing the brunt. For 2010-11, it is estimated at Rs 162,899 crore (Rs 1,628.99 billion). This will come down in 2011-12 to Rs 160,567 crore (Rs 1605.67 billion).

With a five per cent inflation rate, the decline is 6.5 per cent; we focus here on pure capex, not the so-called grants for capital assets, which can be questioned.

So, it seems the government will increasingly play a catalytic role in attracting investment from the private sector, not remain a dominant investor.

While this is welcome for industry and infrastructure, it can be deleterious for agricultural capital formation.

Siddhartha Roy, Economist, Tata Group.

 

Siddhartha Roy
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