Bengal Tiger

1 March 2006



Indian Budget Aims at 10% Growth

Yesterday, India’s Finance Minister Palaniappan Chidambaram delivered his “common man's budget” to parliament. He is ambitious in trying to get the local economy to grow at 10%. He intends to increase education spending by almost a third and health care spending by 22%. At the same time, he plans on reducing the budget deficit. He needs to pull this off.

India now has just over 1 billion people. According to Paranjoy Guha Thakurta, a Delhi-based economic analyst, half of that billion tries to live on US$2 a day, and 25% are below India’s official poverty line. One in three cannot read or write their own names, and half of the kids in primary school drop out. In other words, despite the recent boom in places like Mumbai (Bombay to those who haven’t kept up on things Indian), Bangalore and Ahmadabad, there are a lot of Indians who haven’t made it yet.

The Reagan line that a rising tide lifts all boats is clearly not true. India’s left-wing government is trying to get the money made by the emerging middle class of India to trickle down, but the risk is that in doing so, it will accept policies that get the well-off to move to Queens, New York or Southwark, England. To avoid this exodus, the pie has to keep growing so that giving the poor a larger slice doesn’t make the better-off feel burdened.

The key is going to be maintaining and improving the nation’s infrastructure. Roads, bridges, and electricity generation must be kept up or the whole edifice decays. The Finance Minister has budgeted for 1,300 kilometers of “access-controlled” highways linking major cities, 220 billion rupees (US$1 = 44 rupees) on oil refining, and 187 billion rupees on rural infrastructure.

The bad news for India is the growth of the infrastructure may not be able to maintain pace with the economy as a whole, resulting in bottlenecks, inefficiencies and lost opportunities. According to Mr. Thakurta, “During the first nine months of the current financial year that ends in March, the index of six core infrastructure industries (coal, electricity, crude oil, refined petroleum products, steel and cement) grew by 4.5%.” The economy grew by 8%. If the government wants 10% economic growth, 4.5% infrastructure growth is untenable for the long term.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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