The Congress has got down to the business of sorting out equations with its alliance partners, and the new government will soon have to start doing what people expect it to—because there is no place to hide any longer. From an economic perspective, the new government takes office in circumstances similar to 1991 in some ways. The overt manifestations of the problem are, of course, quite different—there is no balance of payments crisis this time, inflation is dormant and the growth rate in the trough of the business cycle is not much lower than the growth rate during the years preceding the 1990-91 bust. But the fiscal gap is large, there is a serious trade imbalance, and many sectors cry out for reforms. Since 1991, the pressures and compulsions of accelerating growth and rapidly spreading its benefits have grown stronger. While rapid growth over the past few years has undoubtedly benefited large numbers of people, the reality is that the benefits themselves have been quite unevenly distributed. The root cause of this is a range of policy initiatives that governments over the past several years should have taken, but did not.
It should be clear that fiscal discipline and consolidation are not merely ends in themselves. They are means to re-orient government expenditure towards things that the government can do best. To address the uneven spread of benefits, more money has to be spent on infrastructure, education and health care, while fiscal transfers to the poor have to be put on a more sound footing. Government money has to be spent with far greater efficiency. The ultimate aim of the Fiscal Responsibility and Budget Management (FRBM) Act is to ensure that the government recovers all or most of the money it spends on delivering services, thereby leaving it free to borrow in order to create assets. To achieve this, the government needs to first improve the quality of its services so that consumers are less loath to pay and then actually ensure that they do. Improving the efficiency of its various delivery mechanisms and creating a far better targeted system of subsidies is clearly a high priority. With specific reference to petroleum and fertiliser sectors, re-structuring the pricing mechanism will have collateral benefits in the form of more efficient usage leading to less environmental impacts. As far as the infrastructure is concerned, the government cannot fund all the investment that is required. It needs to quickly create an environment in which public and private resources combine to yield efficient and reasonably profitable delivery of services. Way too much time has been lost on this front and it must be made up as quickly as possible.
The financial sector is crying out for reforms as well. The tentative beginning made by the New Pension Scheme must be built upon to expand the ability of people to ensure their economic security while creating a large resource pool for long-term investment in areas like infrastructure. Getting the corporate debt market is an essential part of this. The banking system has significant room for improvement in achieving equally important objectives of efficiency and inclusion. This process will very likely be speeded up by some degree of re-organisation of the public sector banks. All these and more have been on the government's to-do list for years. The mandate has denied it excuses for further postponement of action.
