The Central Statistical Organisation is possibly the only entity that provides realistic data on the performance of Indian industry and the economy at large. A few weeks ago, the CSO released updated figures-as distinct from estimates furnished earlier-on a few important indicators of growth for the fiscal year ending March 31, 1999. Industrial growth, the CSO argued, was 2.9 percent, agricultural growth 7.6 percent and service sector growth 6.1 per cent. However, the net impact on the overall economic performance remained unchanged at 5.8-6 per cent.
What is of concern is that the CSO has revised upwards the total deficit of the central government to 7 per cent of gross domestic product. This is worrying. Fiscal deficit is the one single indicator that measures the long-term health of the econonry.
A high deficit demonstrates fiscal imprudence and inadequate political will to do what, is economically right. While' emerging economics are likely to contain some imbalance in public finances, a "manageable" fiscal becomes deficit should not exceed 4 per cent of GDP At 7 per cent, we are among the worst performers.
If one adds the combined deficit of the states, the situation becomes alarming. The Reserve Bank of India estimates the gross fiscal deficit of states was 3.5 per cent of GDP in 1998-99. The combined fiscal deficit, therefore, is in the double digits, which is clearly not sustainable.
Because of the large pre-emption of borrowed funds for meeting the revenue deficit, resources available for investment have declined. The RBI estimates that resources available for capital outlay declined from 25.6 per cent in the 1998-99 Budget estimates to 18.8 per cent in revised estimates.
Further, since the government meets the deficit through borrowings at market determined rates, the future liability to service such borrowings increases. This severely hampers the ability of the economy to come out of the vicious circle.
The impact upon industry is colossal. Governments have two ways to fund their spending shortfall: monetise the deficit or borrow. The first leads to inflationary pressures and the second makes funds scarce and hence expensive for industry. A higher cost of funds leads to a fall in private investment and consumption.
No economy can sustain unmanaged government spending. It should, therefore, come as no sur. ptise if India catches the Asian flu in the near future, unless of course there is a determined effort to balance the Budget.
But is this possible? Not quite, politicians would argue. The bulk of government spending goes into servicing old loans; almost 80 per cent of the fiscal deficit is accounted for by interest payments. Then there is defence spending. After Kargil, cuts here seern impossible. Two areas where cuts can be made are the Centre's wage bill and agricultural subsidies.
The second option is to increase tax revenues. But revenue is contingent upon industrial performance and improved compliance. Both need time. Industry cannot do better suddenly and improved compliance needs a change in the attitude of the taxman and the taxpayer.
It follows, therefore, that the only option available to the government is to privatise to raise revenue in
