Just mid-year and govt stuck deep in red

At this point, the deficit should have just been in the range of less than Rs 35,000 crore, if targets set under the Fiscal Responsibility and Budget management Act had been met.

While the Mid Year Review of the economy, tabled today, expectedly kept its growth projections around the 6 per cent mark, it was less effusive about financial discipline.

“(Even at 6 per cent) India would continue to be one of the fastest growing economies in the world,” said the report.

The farm sector had been hit by the 13 per cent deficient monsoon. The industry and service sectors were expected to pick up and there was a definite pick-up in investment.

Even agricultural projections were not entirely gloomy and the rabi crop was expected to do well and make up for the shortfall in the kharif crop. The year would probably end with an inflation rate of around 6.5 per cent.

If fiscal discipline has slipped at the halfway mark, things could get worse in the months to come. The Employment Guarantee and Food for Work programmes could increase spending, as could higher subsidies on fertiliser.

At the same time, tax targets are not being met. Part of this was on account of duty cuts in petro-products, steel, polymers and edible oils to rein in inflation, which had touched a four-year high of 8.33 per cent in August.

Outlining the reform agenda, the Review made a case for focusing on the issues of insufficient investment and indadequate infrastructure.

The Review said that the spotlight would be on reforming the cooperative credit system for agriculture. Efforts were also on to create a common market for agriculture produce in the country, with an eye to encouraging growth in commodity future trading needs within a modern and sound regulatory architecture.

Stressing the need to attract greater foreign investment, the Review said that a beginning had been made by enhancing the FDI ceiling in civil aviation. However, the task of achieving larger foreign investment in more sectors particularly key sectors like telecom, insurance and pension still remained.

The textile sector remained one that was full of promise as a new regime was replacing the multi-fibre agreement quotas from Januaru 1, 2005. To take advantage of this, policy had to be reformed and more capacity created, the Review said.