New Delhi [India], January 3 : Montek Singh Ahluwalia, former Deputy Chairman of the Planning Commission, has raised concerns about India's high fiscal deficit, stating that it is much more than other developing countries and hampering private investments.
In an interaction with ANI, Ahluwalia emphasized the urgent need for the government to make a clear roadmap for reducing the fiscal deficit of both central and state governments to enable the economy to achieve its growth ambitions.
He flagged off the need for a clear roadmap to reduce the fiscal deficit. Referring to the government's fiscal targets, he said, "The finance minister has indicated a target of 4.5 per cent for the coming year, but reducing the debt-to-GDP ratio substantially, as initially planned, would require even greater cuts. I'm unsure what the government's plan is on that front."
He said, "India's fiscal deficit is significantly higher than other developing nations, which squeezes resources away from private investment."
Combining the central and state fiscal deficits, the total deficit is estimated to be close to 8 per cent of GDP, more than twice that of other developing nations.
He added "So if you want a private investment-led economy, then I think that's the only way you're going to get 8 per cent growth. You have to cut down the fiscal deficit. It isn't just the deficit of the centre. Most people talk about the centre. It's also the fiscal deficit of the states. And the states have been running higher fiscal deficits"
Ahluwalia pointed out that the state governments often disguise their deficits by borrowing under the guise of public sector enterprises, which adds to the fiscal burden.
Ahluwalia also called for a review of state expenditures, particularly politically motivated freebies and subsidies. While acknowledging that some expenditures are essential, he suggested reallocating funds from less critical areas to more productive uses.
For instance, he criticized the fertilizer subsidy, arguing that it benefits the fertilizer industry more than farmers, while excessive fertilizer use harms soil health.
He said "I mean for example a lot of economists will tell you that the amount of money that we are spending today on fertilizer subsidy is only helping the fertilizer industry. As far as the farmer is concerned excess use of fertilizer is only kind of damaging the soil".
On India's economic growth, he observed that the current growth rate hovers around 6.5 per cent, with international forecasts predicting a similar trajectory. However, for India to achieve its "Viksit Bharat" vision by 2047 and transition from a middle-income to an upper-income country, the growth rate needs to rise to 8-10 per cent. He urged the government to outline and implement strategies to meet these ambitious targets.
Ahluwalia's remarks highlight the need for fiscal prudence and strategic economic planning to steer India towards sustained high growth.
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