Mon, Jul 14, 2014 - Page 15 News List

Indian budget indicates caution

RAISED EYEBROWS:Analysts said the BJP’s stated goal of cutting the fiscal deficit to 4.1 percent of GDP was optimistic, given the limited scope reforms in the budget


Activists from the Communist Party of India Marxist-Leninist burn an effigy of Indian Prime Minister Narendra Modi during a protest against the rail ticket prices and the budget in Siliguri, West Bengal, on Thursday.

Photo: AFP

The maiden budget from India’s new right-wing government has promised a return to high growth — but disappointed some who hoped Indian Prime Minister Narendra Modi might use his large mandate to implement radical change.

The Bharatiya Janata Party (BJP) government opted for small steps in last week’s budget, in what it called “the beginning of a journey” after winning in May the largest electoral majority in 30 years.

While some economists felt Indian Finance Minister Arun Jaitley should have been bolder, Deepak Lalwani, head of financial consultancy Lalcap, told reporters it was not “realistic to have ‘big bang’ reforms so quickly.”

Jaitley pledged faster economic growth, tighter fiscal discipline, greater openness to foreign investment and a revamp of infrastructure.

However, he left intact US$43 billion worth of anti-poverty subsidies — raising questions about how he would meet ambitious targets to cut government spending.

Jaitley’s predecessor, former Indian minister of finance P. Chidambaram, said acerbically that after criticizing the previous left-leaning government’s subsidies as “mindless populism,” the new man in the job did not touch them.

“Welcome to the real world,” Chidambaram said.

India’s hundreds of millions of poor are a vital vote source of votes, and the BJP and its allies have their eyes on this year’s state elections.

The party controls just eight of 29 local governments, and anti-populist moves could alienate voters.

Economists have long argued that India’s economic potential could only be unleashed if it curbed subsidies and ended suffocating regulation.

They also advocate relaxing rigid labor protection laws, and easing complex land acquisition laws to boost industry. The budget left all these issues off the agenda, although Jaitley said he hoped a long-awaited national goods and services tax aimed at increasing inter-state commerce would be ready by December.

Japanese brokerage Nomura called the failure to tackle subsidies a “disappointment.”

However, others said that rather than missing the reform boat, Jaitley is playing a longer game to build consensus in a fractious democracy of 1.25 billion people in which competing business, social and political interests abound.

“Mr Jaitley has presented an admirable budget and he’s extended hope of many more reforms,” Ajay Bodke, investment strategy head at brokerage Prabhudas Lilladher, told reporters.

Reducing subsidies at a time when farmers are struggling through a weak monsoon was not an option in this budget, Bodke said. The government already delivered some bitter pre-budget medicine in the form of a double-digit hike in rail fares.

“Nothing can be done overnight — things take time in India — but Mr Modi is a free-enterprise person, and so we could have a different India in five years,” said D.H. Pai Panandiker, who heads the Delhi-based RPG Goenka Foundation think tank.

Jaitley’s decision to stick to the last government’s goal of cutting the fiscal deficit to a seven-year low of 4.1 percent of GDP has raised eyebrows.

He plans to meet the target through higher tax revenues and quadrupling privatization proceeds, but change may not just come through budgetary measures, analysts say.

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