If Ran My Economy, I Would ... the Global Financial Crisis Is Forcing Governments to Slash Public Sector Funding, Delay Large-Scale Infrastructure Projects and Sec Where They Can Attract Foreign Investment
Hodge, Neil, Financial Management (UK)
For this issue, we asked a number of CIMA members from around the world what they would do if they ran their country's economy, and how they would both generate Income and cut budgets. Here are their personal responses--which do not necessarily reflect the view of their employers.
Venkataraman Ravichandran, vice-president--global business services, Hewlett-Packard
The Indian economy has recently seen GDP growth slow down to seven per cent, inflation rise to 9.6 per cent, the rupee depreciate to an all-time low against the US dollar and the fiscal deficit increase to 5.6 per cent of GDP. The key drivers to improving the country's economic performance will be to create more employment, reduce inflation and improve income distribution.
One of the key ways to improve the country's economic performance is to shake up the agricultural sector, which is one of its major industries, but which is also inefficient and expensive. For example, more than 25 per cent of India's production is lost in the supply chain due to poor storage facilities. The government also needs to embark on a course of land reform to help large-scale agriculture through better land acquisition legislation and process.
This is not the only area of India's spending that could be reduced. The government should disinvest holdings in companies operating in sectors other than agriculture, food, rural health and education, infrastructure and security. The private sector should invest in all other areas. It should also aim to cut 20-25 per cent of government jobs.
There are plenty of other areas that could use Increased investment--and quickly. India should aim to invest around nine per cent of its GDP in overhauling its infrastructure. The investment should be used not only to improve the railways, roads, ports and airports, but also to Improve capacity in the power sector, with large-scale investment in solar energy for cleaner and more reliable power.
The government also needs to invest around five per cent of GDP in improving the country's rural and semi-urban areas. There should be a greater focus on education and health to help reduce significant income disparities, while helping to address concerns related to unemployment and underemployment, and improving the nation's productivity.
Gavin Shiny, regional manager--Wellington, commercial and agri, ANZ
Like many developed nations, New Zealand has been adversely affected by the global financial crisis. As our government enters its second term, public spending cuts are evident. While some would argue public expenditure cut backs are not appropriate at a time when economic stimulus is required, I believe there will always be areas in which public expenditure can be appropriately rationed or reduced.
I would firstly seek to defer any non-essential capital expenditure items in areas such as infrastructure and defence. My rationale is not dissimilar to that of a private company, which would generally seek to prioritise capital investments that forecast a sufficient and timely return on investment.
While I would not seek to reduce expenditure in areas such as health and education, I would investigate ways to reduce waste and excess across our ministries, regional councils and other government agencies. While they play an important role in society, cost efficiencies are there for the taking.
Lastly, I would look to reduce the level of government bail-outs, guarantees and contingent liabilities, which have been evidenced over recent years. This may not be a short-term cost-cutting measure, but one that would nevertheless seek to reduce moral hazard and serve to balance the books.
David Abbott, semi-retired business consultant based in Brisbane, Queensland, Australia
We have a two-speed, or two-tier, economy. …