Finance minister P Chidambaram should raise prices of petroleum products immediately and take other steps urgently to check fiscal timidity, disastrous populism and fiscal profligacy to save the economy from a debt trap, eminent economist Brahmananda has said.
Replying to a pre-budget questionnaire, Brahmananda favoured a ceiling of seven per cent on the growth rate of debt during a financial year and said the Parliament must pass a law imposing a ceiling on growth of debt.
Going by the present slowdown of the economy, he wondered whether India could achieve a GDP growth rate of more than 5-6 per cent during 1997-98. He forecast the GDP growth during 1996-97 at about 6.5-6.7 per cent.
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On the mounting fiscal deficit, Brahmananda said making good the oil pool deficit of over Rs 18,000 crore would itself add 1.5 per cent to the GDP deficit during the next financial year.
There is no escape from raising the prices of petroleum products immediately if the government wants to avoid high inflation, said Brahmananda.
Raising petroleum prices could also help reduce the growth rate of consumption, Brahmananda said, adding that it would not be proper to increase budget deficit in place of raising the prices of petroleum products.
To compensate for the additional financial burden being incurred by the government due to new expenditure, the Centre could also ask state governments to raise surcharges on land revenue besides raising professional taxes, levy surcharge and sales taxes, Brahmananda said.
To make up for the additional financial outgo, the finance ministry should spread out implementation of the recommendations of the fifth pay commission over a period of five years.
Meanwhile, a surcharge on income, corporate taxes, central excise and customs should be levied to fully offset the burden due to implementation of pay commissions recommendations, Brahmananda said.
He said the implementation of the pay commission proposals would add 1.5 per cent to the fiscal deficit. If we take into account repercussions on state governments, there would be an additional burden of 2.5-3 per cent, he said.
Brahmananda said a minimum of 3-4 per cent growth in agriculture was necessary to attain the growth rate of 7-8 per cent.
He said growth rate in services was primarily a reflection of increase in personal income and wages in this sector. It did not reflect addition to basic goods supply or basic exports.
Higher industrial growth or growth in services cannot make up for lapses in the agriculture sector. The growth in the farm sector has direct and indirect effects, the economist said.