Indian budget seeks return to 9 per cent growth
Updated
India has announced its budget for the next financial year and its finance minister Pranab Mukherjee hopes it will take the country back to high growth rate of 9 per cent.
Pranab Mukherjee also seems to think that India has seen off the worst of the global financial crisis. This budget was suppose to be one for the common people, but does it deliver?
Presenter: Zulfikar Abbany
Speakers: Siddhartha Sanyal, economist with Edelweiss Securities in Mumbai
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SANYAL: See the job in the hands of the government were two-fold; one is to provide some kind of continued support to growth and the expectation was that it would be 'common-man-centric', towards the bottom end of the pyramid, that is more or less met. But there was a big second expectation that there will be some kind of a roadmap for future businessmen and reforms in general. The government is more or less silent on that.
ABBANY: This is the tightrope that you've been talking about isn't it, because you of course have written on this. This is the tightrope, how does India on the one hand deliver for the common person and on the other hand work towards greater growth in the future?
SANYAL: Absolutely, but there is no conflict as such to deliver at the moment and to have some kind of a future roadmap. And the roadmap part is they're absolutely lacking at this moment, so that is not coming out at all. It was the expectation of the financial markets that lift in general. They have provided support to the immediate needs of growth but in the process another big toll has been fiscal deficit as you see the borrowing requirement has gone up by 90-thousand croe at this moment, so from three lakh crore it has closed to four lakh crore, the main borrowing requirement, which is a big, big, big, big number, and it will definitely have some kind of obligation for them going ahead.
ABBANY: So what are you saying that that's not sustainable for India?
SANYAL: I'm not saying but the structural issue in the case of India is, in India you cannot do an active management of fiscal deficit at this stage. You have to provide support to growth, gradually once growth comes back revenue goes up for the government and that provides some kind of passive recovery for fiscal deficit. That has what has been the target and government is going towards that direction. But still the revision of 90,000 crore which is almost one-third of what they had projected earlier, that is a big revision, and in that way it's a negative as far as borrowing is concerned.
ABBANY: Just taking a broad picture approach to this, the Finance Minister Pranab Mukherjee has said that he wants to take India back to a 9 per cent high growth rate. Is that at all realistic or even wise? I mean at the same time he is talking about aiming for financial austerity, whatever that means?
SANYAL: I don't know, most probably it'll be very difficult for India to reach a 9 per cent growth rate in this year itself. But if you ask me for a slightly longer term result I'm very bullish on India's growth potential because there are so many areas where the potential for growth has not really been exploited to the fullest extent. You have a huge segment of agriculture which is very less developed and low productive area. There is room if you invest little in that particular area the return from that can be quite significant. So far we have reached a high growth only on the back of the services sector. Going ahead if you can nurture the other two segments, some of the lower end industries and agriculture there is definitely potential for India to come back into a high growth path, especially in a country like ours there is huge scope for industry and generating growth through infrastructure, and that is very much a possibility.
ABBANY: So do you expect this budget to be welcomed internationally?
SANYAL: I would say people would have loved to see more specific numbers in terms of how India can bring the fiscal deficit down, what should be the exact part of reforms, what should be the exact growth so far as business is concerned. On those terms people will be disappointed.
