Expected Financial Sector Reform In Budget 2008
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It is believed that the growth of the economy of a country can be triggered by applying a small deficit in finances. In the year 2005 to 2006, budget proposals revealed that there was a revenue deficit, which amounted to Rs.95,312 crores. The fiscal deficit recorded was Rs.1,51,144 crores. It was observed that in the year 2004 to 2005, GDP/GFD ratio decreased by 0.5%. Due to Fiscal Responsibility And Budget Management Act, the ratio between gross domestic product and that of gross fiscal deficit would be brought down still further.
It is believed that the growth of the economy of a country can be triggered by applying a small deficit in finances. In the year 2005 to 2006, budget proposals revealed that there was a revenue deficit, which amounted to Rs.95,312 crores. The fiscal deficit recorded was Rs.1,51,144 crores. It was observed that in the year 2004 to 2005, GDP/GFD ratio decreased by 0.5%. Due to Fiscal Responsibility And Budget Management Act, the ratio between gross domestic product and that of gross fiscal deficit would be brought down still further. This is part of the expected financial sector reform in budget 2008.
History of deficits:
- In the year 1970 to 1971, deficit accounted for Rs 1,408 crores.
- Rs.8,299 crores was the deficit during the period 1980 to 1981.
- It increased to Rs.44,632 crores during 1990 to 1991.
- During the period 2000 to 2001, the deficit was Rs.1,18,816 crores.
Approach of the government:
It is difficult to ascertain the limit, which may be allowed to be resorted to in case the deficit is increasing. Few economists feel that the need of the hour is to reduce expenses and tax rates. However, the approach adopted by the government seems to be quite on the contrary. The government is raising the gross domestic product by means of these deficits. There is a clear indication that the GDP/GFD ratio is being treated as an indicator for estimating the graveness of the situation(deficits).
Even the Fiscal Responsibility And Budget Management Act, which is being heavily banked upon seems to be depending on the decrease of the GDP/GFD ratio. There are apprehensions about the validity and authenticity of the use of the ratio between GDP/GFD as an instrument for the estimation of deficits in the country.
Foreign direct investment:
Inflow of foreign exchange has increasingly become important and gained prominence in the past few years. Statistical data proved that between the period January 2007 to June 2007, the total amount of FDI or foreign direct investment amounted to USD$11.4 billion. This inflow is approximately 218% more as compared to what the inflow of foreign direct investment was in the year 2006. In 2006, the total amount of FDI accounted for USD$3.6 billion.
Net Capital Inflow:
Expected financial sector reform in budget 2008 would discuss in details the net capital inflow in the country. The total amount of net capital inflow in India for the financial year 2006 to 2007 was reckoned to be USD 57 billion.
Inflation:
Financial sector reform in budget 2008 would improve the rate of inflation but the government has proved to be successful in maintaining a sound inflation rate in the country. The government in India has successfully struck an equilibrium between money supply and demand for various goods. The Indian government has set a target inflation rate of 5% for itself.
