Yashwant Sinha, former finance minister and chairman of the parliamentary standing committee on finance, on Thursday asked the government to show the political will to bite the bullet by checking the alarming fiscal deficit in the union budget to control inflation.

Delivering the keynote address at a roundtable on budget, organised by Observer Research Foundation, Sinha said the government has fallen into the vicious cycle of increasing fiscal deficit, especially the revenue component which has led to rising inflation and increasing prices.

“When you fall into the vicious cycle, you take a step to get over a problem and that lands the government again into another crisis and it goes on worse,” Sinha said. He pointed out that according to the Economic Survey in 2004, the economy seemed resilient, with large scope for consolidation of gains, but according to the statement of the prime minister on September 11, 2012, the economy was in a crisis – “last time we faced this problem was in 1991”.

Talking of the various sectoral issues, Sinha said the villages have not benefited from the growth. He said key sectors including agriculture, telecom, education, infrastructure, health all are in crisis.

Critiquing the lack of emphasis on substantive capital market reforms, Dr. Muneesh Kumar, professor, Financial Studies, Delhi University, underlined the need for the reviving primary market through holistic and progressive policymaking. Instead of taxing the market through policies such as the Securities Transaction Tax (STT) or the proposed Commodities Transaction Tax, existing structures should be enforced strictly. He pointed out how wrong policies are distorting markets, like in the case of gold and real estate.

Neha Malik from ICRIER also underlined the need for further study before market taxation. With the introduction of the STT, a number of stock exchanges reported that volumes have migrated to other international stock exchanges. This contradicts the urgent imperative to create greater market depth and participation for capital formation in the Indian economy. Moreover, taxation on commodities market which is used for hedging risks will likely lead to market inefficient market distortions.

Sinha also underlined the need for checking the unaudited expenditure through various Centre-funded schemes. The expenditure is estimated to be more than Rs 2,37,000 crore, according to MK Venu, the managing editor of the Financial Express.

N.K. Singh, MP and former union revenue secretary, who moderated the roundtable, said the wastage of such a huge amount by the centre is in contravention of the constitution itself, as the money in fact belonged to the states.

Saying we are slow on reforms, Dr Alok Pandey, professor, Asia Pacific Institute of Management, said we needed a “path-breaking” budget this year to tide over the crisis. Jayshree Sengupta, Senior Fellow, ORF, added that supposedly big ticket reforms such as FDI in multi-brand retail are simply not enough to generate interest in the economy.

Pronab Sen, country director, International Growth Centre, said the problem is all the governments are ducking the question of “what sort of economy do we want to be”?

T.K. Arun, editor, opinion, of the Economic Times said economic reforms cannot be divorced from the need for transparent political and election funding. “Till we bring about transparency in election funding, the problem will continue,” he said. He said we also lacked the political will to bring about   effective economic reforms.

Lt. Gen. (Retd) Nirbhay Sharma said defence economy should be taken as a key economic pillar, taking the real needs of the sector in modernisation. He said most of defence ordnance units have become a big drain.

S.C. Tripathi, former union secretary, said there is a need for merging many ministries and creating single entities – citing the example of five ministries in charge for energy issues. He also said there is a need for better compliance and use of ICT to increase efficiency.

Saying 7,000-odd village ‘mandis’ have become monopolies, Sunil Khairnar of the Financial Technologies Group suggested creation of spot exchanges for commodities that could be a better option to replace mandis and provide for supply of goods to big retailers like Walmart. He said this would benefit farmers, as in the successful case study of Amul. To bring in this transformation, he suggested changes in the APMC Act. 

Charan Wadhva of the Centre for Policy Research reminded every one that this is the last budget of this government before the election and so, one needs to be realistic as far as hard decisions are concerned. He impressed on the need to channel savings to capital formation.

Surendra Singh, former union cabinet secretary and advisor to ORF, was apprehensive about the government’s cash transfer scheme. Pointing towards the increasing social unrest, he called for effective economic reforms which would rein inflation and control unemployment.