A day after the UPAs interim Budget was flayed for not offering anything by way of a stimulus to the industry, Arvind Virmani,chief economic advisor at the finance ministry,said already a significant economic stimulus had been offered a fiscal deficit of 6 per cent over 3.1 per cent the previous year implied a 3-per cent gap which accounted for a stimulus for the whole economy. In an interview with Gunjan Pradhan Sinha,Virmani said the government had done what it was supposed to do in an interim Budget. Excerpts:
The media has gone to town calling the Budget tepid. What is your take on the restraint shown by the government in its Budget announcements for the next fiscal?
I respect other peoples opinions,but as far as this Budget is concerned,it is clearly an interim Budget which means a Budget between two Budgets. By convention,no major announcements are made in an interim budget or vote-on-account. In an interim Budget,Parliament votes on the whole account presented to it and not individual heads unlike a normal budget where there is a vote on all appropriations. So,major announcements have been kept out.
But what is the economic rationale behind the restraint exhibited in these abnormal economic circumstances?
The economic crisis is not a micro issue. The external shock has macroeconomic impact and the focus has to be on the larger issue. With due respect to critics,it must be remembered that in 2008-09 the country recorded a fiscal deficit of 6 per cent over 3.1 per cent the previous year. The 3-per cent gap is clearly a fiscal stimulus given to the economy on various fronts. If we include the deflationary impact of oil prices we can add another 1 per cent,and the stimulus would amount to almost 4 per cent of gross domestic product.
And in terms of specifics?
Efforts were made to take care of the monetary aspect and add to demand. As far as specific measures are concerned,we announced the farm-loan waiver and implemented the Pay Commission recommendations which were actually decisions slated for February or March 2009. We acted at a time when the real effects of the meltdown were being felt. So I would say that these measures started taking effect in September and October,at a time when it was needed most.
What is your outlook on fiscal deficit for the next year?
The Budget clearly says that the global financial problem will continue into the next year. We have indicated a fiscal deficit of 5.5 per cent in the Budget,and another 0.5 per cent to 1 per cent may have to be added when the new government presents its Budget. This would amount to a total deficit of 6 to 6.5 per cent,translating yet again into a stimulus of about 3 per cent for 2009-2010. Next year,there are unlikely to be below-the-line expenditures in terms of bonds. Thus,on the macroeconomic level,it is the fiscal deficit that will offset the fall in demand.
Individual sectors affected by the meltdown were expecting some kind of support in the Budget. What do you have to say to them?
There are various socio-political measures that have to be taken,and are being taken,to minimise the impact of the slowdown. Even though there is no way to substitute the slowdown in global demand,socio-political measures are being taken to handle impact on export-oriented sectors,including gems and jewellery. There is a realisation measures taken to control inflation have impacted sectors such as automobiles,as money was sucked out of the system. These imbalances should be corrected now as the situation is very different and the government is moderating the credit squeeze.
The governments Budget estimate for plan expenditure on capital account in 2009-2010 is less than the actual plan expenditure for 2008-09. Why is it so at a time where there is more emphasis on greater public spending?
The normal comparison should be with Budget estimates of 2008-09. For a clearer picture,Rs 36,800 crore in 2009-10 is more than Rs 31,510 crore estimated in Budget 2008-09. Also,this year the focus is on social-sector schemes rather than major physical asset creation. The chunk will go to education and health as envisaged by the Planning Commission. There is greater allocation in the non-plan expenditure so as to avoid watertight compartments for expenditure. These will help address the situation as it emerges in the next few months. Once allocation is made under a specific head under plan expenditure,it becomes difficult to change it.
The Budget forecasts a growth outlook of 10.97 per cent for the coming fiscal. What is your take on this,especially when inflation has been assumed to be at 5-6 per cent?
We are still waiting for the third quarter results,which will make the picture clearer. On nominal terms,we expect a growth of around 7 per cent (same as the current year). The final estimates will take some time.