On the eve of the 50^th anniversary of the founding of the Indian republic, time has come for us to look forward, rather than to dwell on the past. There have been many achievements in the last 50 years. These include, among other things, diversification of the economy and reduction in the number of people living below the poverty line. Besides, we have made rapid strides in the field of industry, science and technology. Our achievements over the past fifty years can be gauged from the trends in select socio-economic parameters over the past five decades, which are quite revealing.

    There has been an eighty-eight-fold increase in power generation – from 5.1 billion kWh in 1950-51 to 448.5 billion kWh in 1998-99.

    Production of finished steel touched 24.3 million tonnes in 1998-99.

    The total output of foodgrains expand to 50.8 million tonnes in 1950-51 reached to 202.5 million tonnes in 1998-99 reached 202.5 million tonnes in 1998-99This is almost a four-fold increase.

    There has been over twenty-six times increase in the export value in dollar terms from US $ 1269 million in 1950-51 to US $ 33,641 million in 1998-99.

    The quality of life has recorded significant improvements. Death rate per 1000 declined from 27.4 for the decade end. 1950 to 8.9 in 1996-97. The total life expectancy at birth (in years) went up from 32.1 for the decade end 1950 to 60.3 in 1994-95; the total literacy rate increased from 18.3 per cent in 1951 to 52.2 per cent in 1991.

    Applause is due but much remains to be done. Although thee has been a sharp reduction the proportion of the people living below the poverty line, the growth has its absolute size remains a blot on our economic achievements. Also, the progress in primary health and education has not matched the rapid strides.

    At this juncture it would be appropriate to focus on some of the pressing economic issues.

    The most intractable and longstanding issue confronting us is that of fiscal prudence. The various aspects of the fiscal problem, namely, the fiscal deficit, the revenue deficit, unproductive expenditures and unsustainable subsidies are now fairly well known. With the exception of the initial success achieved in 1991-92 under the pressure of the balance of payments crisis, subsequent improvement shave alternated with setbacks and reversal. There is therefore, a clear need for building a political consensus on this issue in terms of both constitutional and administrative measures that need to be taken.

    The fiscal deficit is the key parameter of macroeconomic policy which has profound implications for inflation, interest rates, investment, growth, the financial system, balance of payments and last, but by no means the least, overall credibility of the Government’s macroeconomic policy. For the Central Government the fiscal deficit simply reflects the net borrowing requirement of the government. When considering Government borrowing from the market, the fiscal deficits of the Centre and the State, Governments need to be aggregated (in 1998-99) revised estimates this was 8.5 per cent of GDP. Such a high level of Government borrowing pre-empts funds which could otherwise have been used productively in industry, agriculture and the services. High deficits also keep interest rates high and investment and growth low. Excess Government borrowing also places undue pressure on the domestic financial system and capital markets. There is also the long term issue of sustainability of fiscal deficit.

    In a qualitative sense, sustainability also depends on the quality of the Government expenditure and the nature of the tax system. Concern about the revenue deficit stems from the legitimate concern that a significant part of revenue expenditure is of low priority. These low priority expenditures and non-targeted subsidies need to be identified and eliminated. This also essential for freeing up funds for completing the unfinished tasks of universal primary education, effective public health systems and modern water and sewage systems for the entire population. The impact of the fifth Pay Commission and its aftermath on revenue deficits of Centre, the States and local bodies lends urgency to the need to downsize government. The time has perhaps come to contemplate legislation on the line of Fiscal Responsibility Act put in place in some of the countries of the world as well as to take up the challenge of reengineering government.

    Quite clearly, fiscal consolidation is absolutely necessary for containing inflation, reducing interest rates, promoting investment and growth, and fostering reasonable stability in the financial system and the foreign exchange market. It is, therefore, essential to put the fiscal deficit on an irreversible and unambiguously declining trend.

States

    States have also to share the responsibility of fiscal consolidation and prudence in a federal polity. State finances need to be strengthened, for both macroeconomic and structural reasons. An expansion in revenue expenditure by the States raises the revenue deficit while leaving little funds for developmental expenditures, especially for the key area of human resource development. Inadequate infrastructure such as irrigation, electricity and roads and human capital formation like expenditures on education and basic health where the States shoulder major responsibilities have large costs not only to the States concerned but beyond their borders. Similarly, inefficient State taxes can limit the benefits accruing from the reform of central taxes.

    The fact that the primary responsibility for social sectors like agriculture and rural development is generally assigned to the States under the Constitution, underlines the importance of State level reforms. These include fiscal reforms, decontrol and delicensing particularly with respect to transport, storage and processing of agricultural goods, reform of infrastructure sectors like electricity, irrigation networks and road transport and decentralisation and involvement of local bodies including NGOs. Institutional reforms such as those related to size and quality of government, freedom of information, economic laws and the legal system require involvement of the Central and State governments as well as the judiciary.

    With the revival of economic growth, the demand for key infrastructure services such as power, telecom, railways, roads and ports, will press harder against existing supply constraints. The strategy to relieve infrastructure bottlenecks must encompass both the creation of additional capacity in various sectors as well as initiatives to induce much better capacity in various sectors as well as initiatives to induce much better capacity utilisation. The strategy must also encourage both private and public provision of infrastructure services in competitive environment and with an appropriate and transparent regulatory framework. This broad approach calls for an acceleration of sector-specific reforms to tackle existing lacunae in the design and implementation of policies.

    As we approach the beginning of the twenty first century, the shortcomings in our social sectors such as education, health, water, supply and sanitation, housing in relation to both our own aspirations as well as performance levels achieved by other Asian countries becomes increasingly stark and unacceptable. The constitutional provisions of making primary education free and compulsory up to fifth standard should be implemented as soon as feasible. The provisions of free education for girls will not only empower women but also help in controlling population growth and improving the quality of life of our children. The achievement of health for all requires great focus on epidemic disease and better water supply, sewage and sanitation systems. In the social sectors, Central and State Governments must clearly play a leading role in ensuring universal provision of basic minimum of services. However, policies should be designed to encourage private provision of services as well.

    The ongoing economic reform process should be re-appraised and revitalised to give the entire national development effort a more human face. The eradication of poverty and unemployment must be the abiding goal of our development policies and programmes. The achievement of this goal will require sustained and rapid economic growth combined with well functioning public programmes for social services, rural development and employment generation to provide an effective safety net for all those millions at the margins of the growth process.