Kochi: The country is staring at a debt trap and steps for fiscal consolidation including expenditure restraint as envisaged in the union budget are positive measures to ward off doomsday scenarios, noted economist Ajith Ranade said here.
“We are borrowing rampantly to bridge the fiscal deficit and this means that we are staring at a debt trap. The accumulating mountain of debt should be reduced,” Ranade said, while delivering the 19th Malayala Manorama budget lecture 'Union Budget 2018 and Beyond'.
Elaborating on the spending pattern, he said 60-70 per cent of our expenditure are on committed heads like salaries, pension and subsidies, leaving little room for the government to address other social concerns.
“It would be an uphill task to achieve 8 per cent growth in next three years,” he said.
Ranade said the budget came in the backdrop of four key factors globally – synchronized, strong economic growth, a revision in the interest rate cycle, increasing protectionism including in the US and a surge in oil prices.
Domestically, this would be the last full budget of the incumbent government and hence should be considered a pre-election budget.
Listing the headwinds or challenges the government faces, Ranade said there was a need to create 10-15 million jobs every year, but not much progress has been made on that front.
The government aims to double rural, agrarian incomes by 2022 but for this to happen the GDP should grow at 14-15 per cent annually, Ranade, who is also the chief economist of the Aditya Birla Group, said.
Giving a boost to private investment spending is also not hitting the right track, he noted.
Ranade also cited lack of growth in exports. “From April 2014 to February 2018 the growth in manufacturing sector would be zero per cent,” Ranade pointed out.
Non-performing assets or bad loans that engulf the banking sector was also cited by the noted economist as a drag.
On the agrarian crisis, he pointed out that agriculture accounts for 50 per cent of the workforce, but the sector contributes to only 14 per cent of the GDP.
“ A solution to the crisis in agri sector should be found outside”.
He said slashing the percentage of workforce involved in agriculture by 10-15 per cent and equipping the workforce to get skilled in more value addition should be explored as escape routes to tide over the agrarian crisis.
Ranade pointed out that a century back about 75 per cent of the total workforce of the US was in agriculture, but it was now only two per cent.
Taxing income on agriculture cannot happen now due to constitutional provisions and masquerading other income as agricultural income is rampant.
Ranade also said the tax net need to be widened.
“Only three per cent of all Indians pay taxes while every year 3 million cars are produced and many of our folks splurge in overseas travel,” the noted economist said.
Ranade, the chief economist of the Aditya Birla Group, is also a brilliant orator and an acclaimed author. He has also served in the boards of Multi Commodity Exchange of India and Hindalco apart from being a member in various committees constituted by the Reserve Bank of India.
Ranade also chairs the Research Advisory Panel of the Indian Institute of Banking and Finance.