Vajpayee8217;s optimism

An economic growth rate of more than 6 per cent is the sort of good news everyone wants to hear but finds hard to believe. So even though...

An economic growth rate of more than 6 per cent is the sort of good news everyone wants to hear but finds hard to believe. So even though all will be cheered by the Prime Minister8217;s forecast, they will keep their fingers crossed and hope the official statistics he bases himself on are reliable, for a change. It is hard to imagine independent economists at the first meeting of the Prime Minister8217;s economic advisory council sounding as optimistic as the Prime Minister on this score.

Halfway through the financial year it looks increasingly as though it will be up to the agricultural sector and mainly output in the rabi season to push growth to that level. Business and industry are gloomier about their prospects than they were a year ago according to a survey by the Confederation of Indian Industry. Key findings are that the number of corporates planning higher capital expenditure has fallen sharply, more of them expect unemployment to rise and fewer and fewer are counting on price stability to bemaintained.

Growing pessimism due to the clouds of uncertainty over the Indian economy and global scene points to the recession continuing well into the next financial year.

If there is genuine ground for hope that the government is getting to grips with some aspects of the worsening situation, it lies in Vajpayee8217;s statements on the fiscal deficit and government expenditure. It is encouraging to find that the Prime Minister does not buy the theory that a higher fiscal deficit is tolerable in the interests of economic growth and has stressed, among other things, the need to cut government expenditure.

The Finance Ministry has indicated where some reductions can be made in departments of the central and state governments such as a 10 per cent cut in non-salary expenditures and the cancellation of unimportant programmes.

All this is essential but far from enough. As the Prime Minister knows, and as his economic advisory council will tell him if it has not done so already, government subsidies will haveto be cut drastically and without further delay. Much of the homework on where the cuts should be made was completed by the previous United Front government. That should provide a useful basis for the economic advisory council8217;s task force to make recommendations which can be implemented beginning this financial year.

A significant omission from the Prime Minister8217;s otherwise accurate list of current and potential troublespots was the impact on poor people of the combination of rising prices and curtailment of development expenditure. In the rush to embrace Amartya Sen as India8217;s own, the essence of what he says about poverty, distribution policies and economic opportunity are in danger of being forgotten. The current economic downturn is hurting many sectors of the population but no sector harder than people at the bottom of the ladder.

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When the Prime Minister and the Finance Minister promise to do all they can to boost economic growth they undoubtedly have the welfare of the poor in mind as well.Sustained GDP growth benefits the poor along with everybody else over a period of time. But what are the government8217;s plans for people at the bottom of the pyramid during a recession?