Monday, February 25, 2013

The government it seems wants to make a genuine attempt to rein in fiscal deficit. But that is not to be without several hurdles. For cutting public spending tends to have strong multiplier effect on growth. The Reserve Bank of India so far bore the tag of 'growth spoiler'. Its resistance to cut interest rates was seen as the key reason for disappointing GDP numbers. But now tables have turned. The economy is drudging towards an abysmal growth rate of 5% for FY13. And the RBI's eyes are on the upcoming Union Budget for growth cues. It sees a reformist Budget as the sole hope of economic recovery. The RBI's key concern is too much cut in planned expenditure. Public spending on infrastructure is necessary to avoid a downward spiral in the economy. At the same time populist spending on subsidies etc could thwart its inflation control attempts. We would have to wait and watch whether the government delivers on RBI's demands this time.

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