Chillin' out till it needs to be funded
This budget is one of the most critical for India. It is so, because Economists in China, UK and the US look to this leading economy to provide critical hints, if not complete solutions for the way forward. India has seen it before and for the second time survived a mega recession without hopelessly accelerating or unduly depressing any economic levers. Our concerns about long-term unemployment also would be completely different from the developed world’s long-term lay-offs led and financial reform led depressed state of mind.
However, the policy planning and the economic and political commentary on the networks is indicative of the same symptom when Citibank was alive and India was suffering from non recognition of symptoms or reforms staring it in the face in light of a sluggish prognosis. Maybe we are just out of cash. Maybe there is something still for the imagination to save without spending extra dollars on saving the house.
The Indirect taxes and even some Direct tax measures had in fact reached near ideal state without souring the last July’s moves that were attributed to stimulus. The direct cash infusion of INR 2 T was also attributed to stimulus but was a long needed fiscal correction for the farmers and the salaried class. Now its retail inflation led by unprecedented food price usury and culminating in shelving of tax reforms in the form of direct tax code, petroleum market pricing reforms by shelving of the Kirit Parikh report and many more. The excise slabs will be back at 10-12% leaving behind the desired stop at 8% and the greater acceptance of these as withdrawal of stimulus is actually letting the reform cat slip out of the bag.
In fact the anti dumping measures in Pharma($3.1 – $3.8 per BOU) , Steel($2254 per tonne) , Tyres ($90 ea) and some more in fact could be consolidated under a similar chapter and announced as a policy statement part of the budget, as that seems to be among the most important items that can be tackled right away.
Maybe there will be more affirmative statements for reforms like the policy prescription of increase in FDI in insurance but the Divestment targets have already been pruned to $7.5 billion. The education and healthcare sectors are hardly getting any increases from the look of it unless there is a rabbit in the hat anyone has missed. Let alone the $2.7 Trillion estimated by Goldman Sachs, the government is unlikely to action even the $500 billion of its own estimates to shore up the infrastructure deficit. Our highway plans are at 27% of Targeted 11000 Kms of highway and sheer magnitude of the expenditure is unlikely to be affirmative to economics when the budget is released later this week.
All in all, we seem to be headed towards an insipid 2nd year budget from a government that never produced a first one, and things are unlikely to show up in more clarity despite our continuing growth.
India’s reform prescription needs a new prognosis and some imaginative heads at the helm that can convert this great momentum into something tangible and not eternal hubris.
In the other part of the world too, Obama is already cornered by second stage movements of his own prescriptions and a tumultous 2008. Firstly, It would be positive for them as Healthcare survives in a mutant form and education reforms are pushed. Secondly, there would be growth in statistics leading bouncebacks in Housing and lower joblessness even as more reforms hang fire as bad as the ones on healthcare. And finally, the growth would lose its significance in this mass of inaction and tougher compromises as the seven red listed states try to get into a place where they can start recovery and as elsewhere mentioned again by Citi, Europe injects a further $1T into the banking system in the coming 2-3 years. Is this the winter we promised our children?