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An aggressive effort to reduce the fiscal deficit is needed. Is Manmohan Singh's new team up to it?
Capital expenditure by the government in the first half of this year has reached just 5 per cent of its progressive total expenditure. Despite all attempts by successive finance ministers, this figure has remained anaemic after payments — including subsidies, interest and salaries — are accounted for. To put the number in perspective, the total subsidy paid by the oil marketing companies for cooking gas in six months of this year adds up to more than half of this expenditure. Seen alongside a fiscal deficit report card showing that it has already touched 65 per cent of the estimate for the year, this figure makes the spectre of the economy hitting junk status among international credit rating agencies appear all too real.
Finance minister P. Chidambaram was right to warn his colleagues in the council of ministers on Thursday that only their enthusiasm to run with an aggressive fiscal policy can pull the economy away from this grim inevitability. This means that they need to push through policies that deliver on reforms, of which this government has run up a huge backlog. However, the petroleum ministry's rollback of the hike in the price of non-subsidised cooking gas, within hours of announcing it, has raised concerns about whether the message has been received and registered at all levels. The ostensible reasons for the rollback — for instance, the upcoming assembly elections in Himachal Pradesh and Gujarat — are examples of the kind of disturbances that will occur regularly in the political calendar till 2014. By that reckoning, very few of the promised fiscal measures will be put in place, despite the new team Prime Minister Manmohan Singh has just given himself. Singh, incidentally, has already emphasised to his ministers the limited political time that is available to this government to deliver results.
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