Somanathan urges reform of poorly targeted subsidies to spur growth

FInance Secretary says fiscal discipline key to making economy stronger

Union Finance Secretary T.V. Somanathan on Saturday stressed the need for fiscal discipline to make the economy stronger and suggested reforming poorly targeted subsidies such as those provided for electricity and fertilisers in order to improve the quality of public expenditure.

“First and foremost, State and Central governments need prudent and conservative fiscal policies, this is absolutely critical, if we have to stay afloat and do well,” Mr. Somanathan said delivering the XVI CUB V. Narayanan Memorial Lecture on ‘India in the emerging global economic architecture’.

He also emphasised the importance of reducing the fiscal deficit, particularly at the central level, minimising external debt as well as fostering a strong domestic investment climate.

“We need to improve the quality of our public expenditure, with greater share for those aspects of public expenditure which help to promote growth. To do this, we have to reform poorly targeted subsidies such as those in electricity and fertilisers, without which we can’t improve the quality of public expenditure. There are no quick fixes and quick lunches. It needs to be done. It calls for introspection,” he said.

Asserting that if India continues to grow at 6% to 7% a year it would be way ahead of many countries globally, Mr. Somanathan said, “We have to only ensure that we don’t do anything bad. We will improve, because others are worsening. We have the opportunity to shape the emerging architecture.”

“If India wants to truly play a significant role in shaping the emerging global economy, the most important challenge lies on the domestic front. We can’t shape the global order, if we do not have a strong domestic economy,” he said.

Presenting a bright future, he said there were some early signs of a potential role in new and emerging architecture such as international solar energy, which was going to be one of the key energy sources of the future. Importantly, the international alliance’s headquarters was in India, he noted.