India’s fiscal deficit to be tackled after election
NEW DELHI: Tackling India’s stubbornly high fiscal deficit and pushing through financial sector reforms should be the main priorities after this month’s elections, India’s finance minister said on Saturday.
Jaswant Singh’s Hindu-nationalist Bharatiya Janata Party is expected to coast to victory in the April-May elections at the head of a 20-party coalition, taking advantage of a surging economy, a good monsoon and improving relations with Pakistan.
Mr Singh told Reuters in an interview that economic growth in the 2003/04 financial year ending March would exceed the government’s 8.1 percent target and said he was confident the higher rate of growth was sustainable.
But he said more work needed to be done to bring down a central government’s fiscal deficit, running at around 4.8 percent of gross domestic product. Taking into account borrowing by state governments the deficit is around 10 percent of GDP, leaving little money for health, education or infrastructural improvements in the world’s second most populous country.
“We need to attend to the fiscal and revenue deficit. We have to control the fiscal deficit further.”
Mr Singh aims to cut the federal government’s revenue deficit — the difference between spending and incomes not taking account of debt servicing — to zero before the target date of 2007. And he said it was extremely important for individual states within India to improve their financial positions.
“I can’t dictate to states what they should be doing but I can persuade them gently, and sometimes not so gently.” Mr Singh said the government would continue to push down tax rates and tariffs if it returned to power, but at the same time would concentrate on widening the tax base and managing spending.
India’s tax take stands at just nine percent of GDP, a figure Mr Singh called “abysmally low”. “We are the world’s specialists in not paying taxes,” he added.
Mr Singh also said his government would push through legislation already before parliament to further liberalise the country’s banking and insurance industries, and push for greater disinvestment in state-run firms in general.
“Public sector banks, nationalised banks will increasingly meet competition for greater functional efficiency and they have to rise to that,” he said.
State-owned banks handle 67 percent of India’s banking business, private sector banks 23 percent and foreign banks 10 percent, but analysts expect significant foreign investment in the sector in the next five years.
Mr Singh said the election was the first since 1957 to be fought on the themes of economic development and peace, and victory would give his government a mandate to pursue faster reforms.
“If 650 million human beings are going to the polls with development, economy and peace as the plank, it is a development of global importance. The world needs to sit up and take notice.” —Reuters