Growth sans fiscal discipline not sustainable: Ashok Lahiri

CHENNAI: A country like India can grow faster only if inflation, current account deficit and fiscal deficit were kept under check, said former chief economic advisor

Ashok Lahiri

.

Delivering the 5th Raja

J Chelliah

lecture at

Madras School of Economics

, Lahiri faulted the earlier planners for ignoring macroeconomic parameters in their attempt to aim high growth. This, he said, resulted in higher inflation and persistent balance of payment issues.

"India has avoided macroeconomic crisis after the 1991 reforms. But the economy has demonstrated persistent vulnerabilities in the form of bouts of high inflation and current account deficits," he said. A rule-based transparent and predictable macroeconomic policy framework would do well for the country, said Lahiri speaking on 'India: The need for good macroeconomic policies'. Stressing that the Centre and state governments need to stick to the 3% fiscal deficit target prescribed by the Fiscal Responsibility and Budget Management Act (FRBM), Lahiri said, "It has been a history of shifting goalposts and bypassing the FRBM Act and its rules. There has to be a reasonable fiscal deficit but not an excessive fiscal deficit which is inconsistent with macroeconomic stability."

He cited the economies of south-east Asia to drive home the point that higher growth could be achieved with lower fiscal deficit. "The successful countries in

East Asia

have achieved miraculous growth with macroeconomic stability not by resorting to high fiscal deficits but by containing them at prudent levels. India now has a rule-based, transparent and predictable framework for fiscal and monetary policies, but it has to be preserved and loopholes plugged," said Lahiri. Former RBI governor

C Rangarajan

, agreeing to Lahiri's views, said many questioned the 3% fiscal deficit target. But the number had been arrived at after much deliberations and all governments must adhere to it, he said. The Centre must achieve high growth by controlling prices, keeping fiscal deficit below 3% of GDP and having a favourable balance in the current account, said Rangarajan.