By Alistair Scrutton/Soudi Gazette
The Indian government’s first full-year budget
since its resounding re-election may signal
that increasing populism and ruling coalition
infighting will triumph over policies to
liberalize the economy and cut record borrowing.
This could be the year for India. The world is
looking for motors of growth in Asia, the
$1.2 trillion Indian economy is recovering
faster than expected and the Congress-party
led coalition also enjoys a clear majority in
parliament.
In theory, the budget could allow Finance Minister
Pranab Mukherjee to cut a record $97 billion government
borrowing, and streamline taxes and push sales of state
firms and a 3G mobile phone licence auction to bring
in billions of dollars.
Instead, the 74-year-old Congress party stalwart may
ignore all that and produce a simple statement of accounts
on Feb. 26. It would send a signal Congress increasingly
broadcasts in its second term – don’t rock the boat.
It underlines that while Prime Minister Manmohan Singh
preaches reforms, pressure from Congress rank and file
to focus on social programs combined with Mukherjee’s own
reputation as a safe, if uninspiring, pair of hands may
overshadow any vision.
looking for motors of growth in Asia, the
$1.2 trillion Indian economy is recovering
faster than expected and the Congress-party
led coalition also enjoys a clear majority in
parliament.
In theory, the budget could allow Finance Minister
Pranab Mukherjee to cut a record $97 billion government
borrowing, and streamline taxes and push sales of state
firms and a 3G mobile phone licence auction to bring
in billions of dollars.
Instead, the 74-year-old Congress party stalwart may
ignore all that and produce a simple statement of accounts
on Feb. 26. It would send a signal Congress increasingly
broadcasts in its second term – don’t rock the boat.
It underlines that while Prime Minister Manmohan Singh
preaches reforms, pressure from Congress rank and file
to focus on social programs combined with Mukherjee’s own
reputation as a safe, if uninspiring, pair of hands may
overshadow any vision.
“This is a government that really does not have a mission,”
said D.H. Pai Panandikar, head of the private think-tank
RPG Foundation. “It is reactive. Don’t expect vision in the budget.”
But one senior government official cautioned that the budget speech
was not yet written, and there were some signs of pressure for the
finance minister to present a more reform-driven budget.
“People are trying to persuade him (Mukherjee) to go beyond
an AFS (annual financial statement),” the official said.
Social spending
The budget could push new social programs such as offering
subsidized wheat and rice to the poor. Another program, the
rural employment guarantee scheme that provides jobs for
millions of villagers, costs India about one percent of GDP.
With little will to cut spending, government borrowing may
remain at a record 4.51 trillion rupees ($97 billion) and
possibly put further pressure on interest rates.
The government debt-to-GDP ratio is just under 80 percent,
almost double the norm for emerging Asian markets.
“Clearly there is a concern in the market over the political
constraints,” said Vineet Malik, head
of interest rates at HSBC India.
It should not have been like this.
In Congress’s first term, the communist parties it rel
ied on for parliamentary support were blamed for the
government’s slow progress in liberalizing Asia’s
third-largest economy. Since its election win, those
communist shackles have disappeared. But Congress,
which oversaw a heavily state-run economy for decades
after independence in 1947, now seems prisoner to its
leftist roots despite flirtation with reform under Singh.
The government’s first deficit-laden interim budget in July,
just after its election victory, disappointed many investors
with a 36 percent spending hike funded by record borrowing.
The government’s recent decision to delay the launch of its
first genetically modified (GM) vegetable was also criticised
as pandering to its farmer voter base rather than science.
Reform? No thanks
At the crux of the problem, though, is that Congress may just
not have its heart in market reform.
“The problem was never the communists.
The problem was within Congress itself,”
said Jahangir Aziz, a JP Morgan economist in Mumbai.
“There is no real consensus within the party on these issues.
Mukherjee is a wily old-timer who is one of the most powerful
men in India. He knows how to balance the competing needs of
India’s 28 disparate states – a complex cauldron representing
1.2 billion people and a myriad of castes and ethnicities.
“The finance minister is not gung-ho about liberalism.
He’s the old school of Congress,” said economic analyst
Paranjoy Guha Thakurta. “He believes that India’s socialist
past was not an unmitigated disaster.”
But there have been some initiatives, including announcing
more sales of stakes in state companies and a streamlining of
taxes.
said D.H. Pai Panandikar, head of the private think-tank
RPG Foundation. “It is reactive. Don’t expect vision in the budget.”
But one senior government official cautioned that the budget speech
was not yet written, and there were some signs of pressure for the
finance minister to present a more reform-driven budget.
“People are trying to persuade him (Mukherjee) to go beyond
an AFS (annual financial statement),” the official said.
Social spending
The budget could push new social programs such as offering
subsidized wheat and rice to the poor. Another program, the
rural employment guarantee scheme that provides jobs for
millions of villagers, costs India about one percent of GDP.
With little will to cut spending, government borrowing may
remain at a record 4.51 trillion rupees ($97 billion) and
possibly put further pressure on interest rates.
The government debt-to-GDP ratio is just under 80 percent,
almost double the norm for emerging Asian markets.
“Clearly there is a concern in the market over the political
constraints,” said Vineet Malik, head
of interest rates at HSBC India.
It should not have been like this.
In Congress’s first term, the communist parties it rel
ied on for parliamentary support were blamed for the
government’s slow progress in liberalizing Asia’s
third-largest economy. Since its election win, those
communist shackles have disappeared. But Congress,
which oversaw a heavily state-run economy for decades
after independence in 1947, now seems prisoner to its
leftist roots despite flirtation with reform under Singh.
The government’s first deficit-laden interim budget in July,
just after its election victory, disappointed many investors
with a 36 percent spending hike funded by record borrowing.
The government’s recent decision to delay the launch of its
first genetically modified (GM) vegetable was also criticised
as pandering to its farmer voter base rather than science.
Reform? No thanks
At the crux of the problem, though, is that Congress may just
not have its heart in market reform.
“The problem was never the communists.
The problem was within Congress itself,”
said Jahangir Aziz, a JP Morgan economist in Mumbai.
“There is no real consensus within the party on these issues.
Mukherjee is a wily old-timer who is one of the most powerful
men in India. He knows how to balance the competing needs of
India’s 28 disparate states – a complex cauldron representing
1.2 billion people and a myriad of castes and ethnicities.
“The finance minister is not gung-ho about liberalism.
He’s the old school of Congress,” said economic analyst
Paranjoy Guha Thakurta. “He believes that India’s socialist
past was not an unmitigated disaster.”
But there have been some initiatives, including announcing
more sales of stakes in state companies and a streamlining of
taxes.
Quotegems for the Day :
Why not upset the apple cart? If you don't, the apples will rot anyway. -Frank A Clark
posted by:http://uk.groups.yahoo.com/group/quotegems/
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