Mid-year check

There was a time when government reports were expectantly awaited. That8217;s changed, since other data and information sources are available and there has been some outsourcing of government data collection too. Government reports are useful only if they offer policy analysis and insights into what the government plans, though there are differences between what North Block wishes and what the government implements. It is for this reason that Economy Survey is valued, especially for its first chapter. Although mandated quarterly reviews are part of the Fiscal Responsibility and Budget Management FRBM Act, mid-year reviews presented to Parliament in December have rarely excited the imagination, and this year8217;s is no different. It outlines reasons why India is relatively insulated from the global meltdown 8212; high share of services, good agricultural performance NREGS is thrown in, high savings 36 per cent in 2007-08 and infrastructure investments public and PPP in the 11th Plan. This says little that is not known, though one can question the use made of high savings pre-empted by the government and the related issue of the switch from private to public investment expenditure as a dampener on growth. Since the first six months of 2008-09 have produced GDP growth of 7.8 per cent, the review expects 7 to 8 per cent for the full year.

Though these aren8217;t the review8217;s words, the heart suggests 8 per cent and the brain believes 7 per cent. This is in line with most projections. But perhaps because it8217;s meant to be a review of 2008-09, the document doesn8217;t give estimates for 2009-10, which is the more interesting question. With policy reforms, it expects a return to the 8.5-9 per cent trajectory eventually. Revenue deficit targets compared to budget estimates will be missed, though not fiscal deficit targets. Off-budget items and an inevitable drop in tax collections and increase in public expenditure in the second half are not mentioned in this prognosis.

However, beyond that infrastructure point, the review doesn8217;t root for expansionary fiscal policy.

Instead, with point-to-point WPI-based inflation dropping to 6.8 per cent week ending December 6, an argument is made for loosening monetary policy, so that investment rates remain high. This is a fair point, although liquidity infusions haven8217;t automatically led to greater bank lending there has been a marginal drop in lending rates or flows into capital markets. One reason is chunks of liquidity infusion were sucked out because of dollar outflows. This leads to an intriguing question: Why do all government documents rarely discuss interest and exchange rate policies, beyond mentioning the numbers?