In simple terms, whereas the Economic Advisory Council would like fiscal deficit to be significantly moderated in view of its crowding-out effect, the Eleventh Plan is predicated on a more flexible approach on fiscal targets. Similarly, on the revenue deficit, the Advisory Council report would like its elimination as quickly as possible whereas the Plan, for good reasons, argues that conceptually revenue expenditures are not so undesirable and their targeted elimination not in line with best international practice.

Second, on interest rates, while the Council expects some inevitable hardening, the continuation of a more accommodative regime is an underlining assumption in the Plan and the Finance Ministry’s reaction in asking banks to seek their Board approval was not merely observance of procedural propriety but an indication of a dissuading rise in interest rates which could decelerate the current growth momentum.

Third, nobody can deny the need for better infrastructure nor question the need for public-private investment, even though the continuation of large public investments has fiscal implications. More than that, working with public-private partnership and securing the large investments which are needed still represents a learning curve with uncertain outcomes, especially in creating acceptable models for replication by state governments.

Fourth, the Council, while expecting the continuation of the current account deficit, visualises significantly large FDI flows and marked slowdown in portfolio resources. Notwithstanding some recent increases in FDI flows it is not clear whether, without other significant policy changes, private investments in general and FDI flows in particular would rise significantly.

... contd.