The Interim Budget was largely in line with our expectations with the government indicating higher spends. While that maybe necessary in the current environment, it must be carefully managed to ensure the efficacy of the allocated spending.
The government’s expenditure this year is well above its budgeted estimates with pay hikes for government employees and loan waivers weighing on fiscal health as revenue collection slows down. Some of these expenses are recurring in nature and will reflect in higher spending in the next year as well. There will be pressures as the new government will have to increase expenditure to counter the impact of the global slowdown which has already taken a toll on exports, industrial output and on jobs and individual spending. Fiscal spending is not in itself undesirable.
Government spending is required to compensate for the loss of confidence and fresh investment in the private sector. But the same needs to be directed and reach the targeted beneficiaries. We need to continue to spend on physical and social infrastructure as it not only creates jobs, but also enhances purchasing power at the grassroots level, which will enable a robust pick-up when the economic wheel turns, as indeed it will. Wasteful expenditure can come back to haunt us. Government spending crowds out private spending, and without a matching increase in productivity, leaves the economy vulnerable to inflation and a high debt burden. India remains a fundamentally sound economy and remains high on investors’ long-term radars, notwithstanding the current risk-aversion which has caused foreign investments to slow.
Neeraj Swaroop, Regional Chief Executive, Standard Chartered Bank, India & South Asia
