India's politicians must understand that the road to enconomic growth and stability requires some short-term pain. New Delhi's most recent budget didn't do it.
India's budget is a missed opportunity
Populism has long driven India's political calculations. But recent initiatives had given hope that when the Congress-led government presented its 2013-14 budget, this would rightly cede way to a hard-nosed pragmatism. That, however, was not to be. For once again, India's leaders have sought to dodge the tough choices necessary to relaunch the economy towards a sufficiently robust trajectory, in favour of the politically expedient. (Elections are expected to be held by next year.)
On Thursday, the finance minister announced a budget that will increase spending and subsidies in many popular areas. And how will all this be paid for? Well, the minister in charge of the exchequer, P Chidambaram, suggests that a one-year 10 per cent surcharge on the most wealthy might do the trick. (There are 42,800 of this class of rich -a paltry number in a nation of over a billion, which speaks volumes about India's difficulty in creating prosperity.) And just in case they won't be able to pony up enough to cover the bill, Mr Chidambaram also proposes raising the import duties on luxury cars, motorcycles and yachts.
Prime Minister Manmohan Singh remarked of the budget: "India must get its act together to accelerate the tempo of growth." Well, he's right. The problem is, the budget doesn't quite get the country there.
The challenge is two-prong. First is to recognise that with a large majority of Indians living in the countryside and working on farms, agriculture requires a shot in the arm that goes beyond the same-old subsidies for fertiliser, seeds, fuel and other items. What it needs is increased productivity to raise rural income and to cushion against the ups and downs of the market. Increased help in mechanisation would go a long way towards this, for starters.
Next, India needs more manufacturing jobs to soak up earnest young men and women - those raised in cities and those who move there from the countryside. Yet, economists say they could detect no indication of long-term plans or direction in the budget.
India must have growth of at least 8 per cent a year to absorb new workers and for wealth to trickle to its less developed states. From the perspective of 5 per cent, the expected rate of expansion for the just-ended fiscal year, this is a tall order, indeed. Politicians need to understand that the road to 8 per cent and beyond requires some short-term pain. This budget didn't do it.