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Yashwant Sinha urges spending to boost growth

Union Finance Minister Yashwant Sinha on Monday said he is urging government departments to boost public spending to help reverse the economic slowdown which has gripped the country.

"I have been persuading them to start spending their budgetted amount without waiting for the end of the year," Sinha told a news conference.

Data released by the national statistic agency last month showed that the Indian economy had expanded by just 5.2 per cent in 2000-01, sharply down from the earlier estimate of 6 per cent, leading to concerns the economy was in a far worse shape than expected.

Sinha said he hoped that increased capital expenditure and strict control over unproductive government spending would help spur growth.

The finance minister said additional funds would be provided to those departments which are able to successfully implement and complete projects on the ground.

Analysts agree

Analysts endorsed Sinha's recommendations saying increased capital expenditure would help boost demand but said proper implementation and strict control on unproductive spending were needed to achieve results.

"There is a need to increase government's capital expenditure as it had been declining as a percentage of gross domestic product in recent years," D K Srivastava, professor at the National Institute of Public Finance and Policy said.

Sinha said the government was also counting on good monsoon rains to help raise agriculture production and boost demand in the rural areas where two-thirds of India's one billion population lives.

The Reserve Bank of India has estimated GDP growth at 6.0 to 6.5 per cent in 2001-02 but has said the key factor in achieving the target would be the monsoon.

Sinha said the government would review the economic situation in September to find out whether it would be able to keep its fiscal deficit for the current year within the targetted level of 4.7 per cent of GDP.

India's fiscal deficit for 2000-2001 widened to 5.2 per cent of GDP slightly above the target of 5.1 per cent due to lower than-expected tax revenues.

Analysts have raised concerns about the government's ability to keep the gaping fiscal deficit within the targeted level due to the economic slowdown which has already led to reduced revenue receipts in the first quarter.

Second generation reforms

Sinha said the government trying to push through the second generation of reforms despite the difficulties and opposition it faced.

"All those issues which comprise the second generation of reforms are difficult and controversial issues and none of these is easy," Sinha said.

The finance minister in his budget for 2001/02 launched what is known as the second generation of economic reforms which includes reforms in labour laws, financial and energy sectors and privatisation of state-run firms.

But Sinha's plans have run into stiff opposition from trade unions and political parties, while an arms bribery scandal which rocked the federal coalition government earlier this year. Analysts say the scandal forced the government to soft-peddle on these reforms.

India began an ambitious economic reforms programme in 1991 aimed at transforming the world's second most populous country into an economic powerhouse.

"It takes time to build consensus with regard to such issues and almost all of them call for legislative changes. Legislation itself takes time," Sinha said.

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