This refers to “Policy challenges for the year 2010” by M Govinda Rao” (January 5). I have two comments to further strengthen his point on the need for fiscal consolidation.
First, the comprehensive deficit is more than 10 per cent of GDP in India. This is serious. However, even this, in a sense, may not give the complete picture. The deficit as a fraction of total taxes (instead of as a fraction of GDP) is massive — far more than 10 per cent. After all, the government has future taxes, and not the GDP, to finance the deficit. The ratio of deficit to taxes in the US and elsewhere in the developed world is not so large, thanks to the fact that the tax-GDP ratio is much higher in those countries. So, the fiscal situation in India is far more serious.
Second, the Indian government, unlike governments elsewhere, in the last two years or so, has hardly spent on acquiring assets. The “net deficit” (if we may call it that) is not so large in the US and in other countries as compared to that in India. And, therefore, there is need for more caution here.
Gurbachan Singh, Jawaharlal Nehru University
