Union finance minister P. Chidambaram has painted a really rosy picture of the economy in the coming months, when the fiscal deficit will be lower than the targeted 5.2 per cent, growth will rise from five to six per cent and tax collection will exceed 2012-13’s `10.38 lakh crore. He also said we were in for a “surprise”, with the current account deficit for the coming year at a more “acceptable level” than the 6.5 per cent in October-December 2012. One view by analysts is that CAD has been exaggerated by 0.8 per cent due to deferring numbers between the oil&gas and commerce ministries on oil imports. If this is true, CAD will also automatically come down. On the reforms side, the finance minister said there was a move to do away with “unnecessary sectoral caps” on foreign direct investment that would make India more attractive as an investment destination.
All these announcements, coming soon after the Prime Minister’s pep talk to industrialists last week, underlines the seriousness of the government’s intention to get the economy back on track. But unless these are translated into action, they will just remain good intentions.
It is indeed necessary to attract foreign investment: FDI, with foreign portfolio investments in capital markets, had helped the government cover the huge CAD. But it is not a substitute for getting domestic industry to start investing; and it will do so only if the government is ready to provide a friendly investment climate. Till now, there are hardly any new projects or expansion planned by Corporate India. Most are in consolidation mode; while the growth Mr Chidambaram talks about will come only from investment in new projects or a big expansion in the infrastructure sector.
The major hurdles like corruption, lack of transparency in decision-making and plugging of leakages — whether on the tax front, or schemes like NREGA, where the leaks run into crores of rupees — remain to be tackled. Added to this is the huge illegal squirreling out of money from the country, reflected in secret accounts in different tax havens. The government is yet to show any political will to get these lakhs of crores back. Honest taxpayers are being unnecessarily burdened with indirect taxes due to the huge revenue loss caused by these tax dodgers. In addition, hundreds of crores in taxes are blocked due to disputes: if the government can set up a committee like the Cabinet Committee on Investment to fast-track these cases, it will not be forced to cut down expenditure on badly-needed social welfare schemes to rein in the fiscal deficit. If swift and serious action is taken on these fronts, Mr Chidambaram’s rosy picture can still become reality.