IFG (Inflation, Fiscal Measures & Growth)


In 1991 Mr. P V Narasimha Rao was the Prime Minister of India! The Budget presented on 24th July,1991 by the former Reserve Bank Governor Dr Manmoham Singh was a testimony, setting the economic change for over 20 years from there, irrespective of the Governments that followed.
The crisis was so deep and the essence of this could be felt on the second paragraph of his budget speech; “The new Government, which assumed office barely a month ago, inherited an economy in deep crisis. The balance of payments situation is precarious. International confidence in our economy was strong until November 1989 when our Party was in office. However, due to the combined impact of political instability witnessed there after, the accentuation of fiscal imbalances and the Gulf crisis, there was a great weakening of international confidence. There has been a sharp decline in capital inflows through commercial borrowing and non-resident deposits”.
The financial health of the country was unbelievably low and the debt was rising on dangerous levels. He adds:
“As a result, despite large borrowings from the International Monetary Fund in July 1990 and January 1991, there was a sharp reduction in our foreign exchange reserves. We have been at the edge of a precipice since December 1990 and mores so since April 1991. The foreign exchange crisis constitutes a serious threat to the sustainability of growth processes and orderly implementation of our development programmes. Due to the combination of unfavorable internal and external factors, the inflationary pressures on the price level have increased very substantially since mid-1990. The people of India have to face double digit inflation which hurts most the poorer sections of our society”.

The great economist Dr.Singh concludes the statement,
“In sum, the crisis in the economy is both acute and deep. We have not experienced anything similar in the history of independent India”.

23 years later, the same economic genius, who was lauded as the man who saved the country from severe foreign exchange crisis, inflationary concerns, balance of payments crisis etc etc….was dumped in the political history of this country (as the weakest PM ever!) and as a man under whose Prime ministership India was back to the terrible state of affairs. The result is obvious. The worst ever electoral defeat for the Congress party since its existence was no surprise at all.
Now, the country, once again is in deep crisis! The decade of misrule, decelerating growth, scaring Fiscal deficit and alarming rate of Inflation is going to be an unprecedented test for the new Finance Minister Sri Arun Jaitely. The world anxiously awaits the BIG MODI BUDGET on July 10, for answers! The nation expects a new era of confidence, prosperity and happiness. Will July 10 will be the first day of the “achche din” as promised by Sri Narendra Modi?

The pathetic state of our economy will definitely force the FM to go for tough measures to place the system back on track. Sri Modi, said on June 14; “It’s necessary to take steps to improve financial discipline and improve the economic health of the country, I know my popularity might go down due to these hard decisions, people might be annoyed with me, but they will appreciate it later.”

            So, Tough measures on July 10?

The three Key areas……IFG
1. Inflation
2. Fiscal Deficit

It is never going to be easy for the FM to contain Inflation, Infuse Fiscal measures and accelerate Growth. The entire world is watching, on which model the Modi Budget is going to be worked out. Consolidating the Fiscal grounds mean taxing more on the public or Developing a new Growth model that extends beyond 2015…..


The classic definition of Inflation is “Too much money chasing too few goods”. The recent price hike on Diesel, Petrol, Rail fare, Sugar and the proposed, inevitable hike on LPG and Kerosene coupled with everyday rising prices of Onion and Potato has no doubt put the Govt. in a fix. Containing Inflation is there by becoming a herculean task. The immediate reasons are the Disappointing Monsoon and Crisis continuing in Iraq.

The deficit in rainfall is 43% in June! The meteorological department expects the revival of monsoon by the second week of July. The have also ruled out the possibility of EL NANO (a quasiperiodic climate pattern that occurs across the tropical Pacific Ocean roughly every five years. It is characterized by variations in the temperature of the surface of the tropical eastern Pacific Ocean that could cause warming)

The Govt. says that even the monsoon is deficit this year, there is no cause of worry as sufficient stock of potato and onion is available with the country for consumption for more than a year. Again, only one percent of the potatoes are exported from India. Considering this the Modi Govt. has already initiated tough measures to control the so called “artificial inflation”. Strict measures to check hoarders. The states were asked to initiate severe legal measures against them (hoarding is now a non-bailable offence). The Govt. has also taken steps to include Onion and Potato under the essential commodities act.

The Iraq crisis is worsening day after day! This is bad news for India as we are has imported

Crude oil from Iraq’s Basra oilfields which are far … 25 million tones (MT) in 2013-14, to meet over 13 per cent of India’s oil needs. Spending more on Oil imports will have a direct impact on our current account, as we need to spend more dollars. Under these circumstances, the way out is to reduce consumption. Will the budget propose stringent measures in this regard?


Why luxury at the cost of aam admi? Road Tax is different for different category of vehicles. Insurance cover is different again. Why not Fuel? In India, the poor autoriksha man and the very rich S CLASS Benz owner is paying the same price for petrol and diesel!! Is it not time ripe to end this disparity? Let the rich pay more for their extravaganza (you never questions the prize of a bottle of water in a 5 star hotel…! You just pay!). Why not introduce slab system based on the prize of the vehicle? (For eg: private cars prized above one crore could be levied Rs. 300/liter for petrol). In effect, Taxi cars, auto rikshas, two wheelers, commercial transport vehicles could be provided Oil at much below the current market prize. Eventually this would help reduction the auto-taxi fares and in general the consumption of the fuel. Again, the Govt. could impose a higher slab for consumption beyond the permitted limits. It’s fine for anyone to have multiple cars at home! But, Pay more when exceeds the combined limit allowed!


It’s really difficult to find a Car parking space in the metros and major cities. How much money they charge for the parking space? It’s truly objectionable! Parking should be made free in cities. But, if anyone wants to move around in the City on their private vehicle, they must pay. Free parking space could be provided at entry points and people could be encouraged to use Share Taxi and Metro rails. (Why not introduce metro rails in all major cities, with private participation and complete work in a time-phased manner)


The regulatory authority set up in Oil and Natural Gas sector will monitor and implement fresh and innovative measures that could provide additional revenue for govt. and reduce inflation.
To contain Inflation, the Govt. needs to focus on policies for on a long term view. Temporary reduction in prices might win elections! But, are not the answers to the real problems faced by the people.


Fiscal Deficit is the gap between expenditure and revenue for a given period. The Fiscal Deficit in the first two months of 2014-15 was Rs. 2.40 lakh crore or 45.6 percent of budget estimates for the whole financial year. The estimates for the whole year are 5.28 lakh crores or 4.1 percent of GDP (Gross Domestic Product). When the Finance Minister presents the budget, he will definitely be on a sticky wicket spelling out the Fiscal policies. The Question is: When are we going to be Surplus?
The data released by Controller and Accounts General revealed that the total Govt. expenditure during April and May was Rs. 2.8 lakh crore (plan spending: 59608 Cr. & non-plan spending 2.21 lakh crore). But, more alarming is the state of Revenue collections. It was Rs.38,505 Cr. Or 3.3 percent of estimates. The Revenue Deficit in the two months was Rs. 2.06 lakhs Crore or 53.6 percent of estimates.
The major portion of Revenue for Govt. is from Taxes and the data shows that the Gross Revenue for FY 2014-15 is expected at 13,79,199 Cr.
It is learned that the Modi Budget will liberalize the personal Income Tax exemption limit from the current 2 laks to 5 lakhs. It is curious to see how the FM accommodates the revenue lost for Govt. in this regard and from where the money is going to be generated?

  • What would be the fate of the Food Security bill?
  • How would the Govt. handle external debt? (it was up 8 percent to $440.6 billion at the end of March 2014)
  • Will the Govt. implement GST? (Goods and Service Tax, even if some states have already raised objections)
  • Can the Modi Budget put and end to the Subsidy Regime? (There is an allegation that most subsidies are pro-rich)
  • The Agricultural Income is Tax Free now! Will FM impose Tax on Agricultural Income? (not forgetting that Constitutional reforms are required here)
  • Will the Modi Budget carry on the Aggressive disinvestment policies of his predecessors?
  • 4.5 lakh Crore Tax amount held with Litigations! What speedy steps the FM can initiate?


Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a year, or over a given period of time.

  Annual Average NDA (1998 -2004) UPA I (2004 – 09) UPA II(2009 – 13) UPA (2004 – 13)
Growth rate ofreal GDP 5.9% 8.0% 7.0% 7.6%
General Inflation(Industrial workers) 5.4% 6.1% 10.4% 8.1%
Food Inflation(Industrial workers) 4.2% 7.0% 11.6% 9.0%
BSE,Sensex, averageannual growth 5.9% 15.0% 13.9% 14.5%
Fiscal deficit(% of GDP per year) 5.5% 3.9% 5.5% 4.6%
Annual FDI inflow(billion $) 2.85 15.44 26.19 20.22

*Key indicators during NDA and UPA years
(Source: Reserve Bank of India and Planning Commission)

The data clearly shows that on Growth parameters the NDA was no better than the UPA! But the Vajpayee Govt. succeeded in keeping the Inflation below the Growth rate of real GDP. You will get an answer why the UPA was routed in the last elections from the data. For UPA II, Inflation was at double digits and growth rate much below at 7 percent. So, no cues for the Modi Budget from his predecessors and no doubt that the situation is alarming.
Again, the data released of late is not at all encouraging for the FM. The eight core industries identified as Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity had decelerated 2.6 percent in 2013-14, the lowest in almost a decade. These core sectors have a combined weight of 37.90 percent in the index of Industrial production.
The below average monsoon so far this year will add to the wows of Agricultural producers. The youth, who vehemently supported the “Modi for PM” is desperately waiting for their chances in the Employment Market. They believe that the Development promises of Mr. Modi during the vast election campaign will bring Job Opportunities in the country.
The Sensex at 26K! The market expects a lot of reform process from the Big Modi Budget. The FIIs (Foreign Institutional Investors) are actively pumping money in to the Indian Market on hopes of revival of Growth.

  • How the FM is going to end the Black money circulation in the country and will there be sincere measures to bring back the heavy cash deposits at the Swiss Bank?
  • If that money is brought to accountability, will there be a threat of Greater Inflation?
  • How will the Reserve Bank monitory policy look like?
  • Will there be a cooling down of Interest Rates, which the construction and Housing Sector is waiting for?
  • Will there be another “Volunteer Disclosure of Income” option?
  • Will there be proposals for FDI Hike and Disinvestment of Public Sector?

Above all, Will this Big Modi Budget turn out to be a Semi-populist Budget, taking into account of the forthcoming elections in 5 major states, including Maharastra and Delhi. The BJP is hoping to win all the Five! But Will the FM avoid the BITTER PILL for a mandate in BJP’S favor.

What will be the “MAGIC MANTHRA” for Growth and Development from Mr. Narendra Modi? Will he prove that the promise of “Achche Din” for the poor and middle class, during his vast tour across the country was not a Fiction?


V Ramesh Kumar
(Management-Financial expert and Columnist. The author can be reached at rameshkv74@gmail.com)

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