India’s budget to fight poverty and inflation
India’s 2007/08 Union budget on Wednesday is expected
- to increase spending on its 260 million poor
- aim to keep high growth on track
- to protect the public from rising prices.
HIGH GROWTH, HIGHER PRICES
The economy, Asia’s fourth-largest, has grown at an average 8.3 percent a year in the past three fiscal years and the government estimates it will expand 9.2 percent in the fiscal year ending March 31.
The government must by law bring-the federal fiscal deficit down to 3% of gross domestic product by 2009 & high growth rather than spending cuts to meet its targets.Shuchita Mehta, economist at Standard Chartered, expects the shortfall to have fallen to 3.6 percent this year from 4.1 percent in 2005/06.But that high growth, coupled with domestic demand and stagnant farm production, is also stoking price pressures. Wholesale price inflation is at its highest levels in more than two years above 6.6 percent. Consumer prices are rising even faster and the government has made beating inflation a top priority.
FARM AND INFRASTRUCTURE STRESS
Farm output has failed to keep up with demand, forcing the government to import wheat last year for the first time in six years. Production of pulses, a diet staple, has stagnated.
The government has tried to combat inflation by cutting some import duties, while the Reserve Bank of India has raised its short-term lending rate to its highest in four years.
“The long-term solution to tackling supply-side problems is investing more in infrastructure and agriculture,” said Nilanjan Banik, assistant professor at the Institute of Financial Management and Research in Chennai.
Infrastructure spending remains a weak link. Despite the government’s efforts to woo private investors, it says it needs $350 billion over the next five years to improve roads, ports, power and airports.
Banik said the government could look at innovative steps, such as diversifying its record-high foreign exchange reserves away from the dollar to higher-yielding instruments such as gold.The higher returns could be used to fund infrastructure projects.
Agriculture’s share of the economy has shrunk to 17 percent from nearly 30 percent 10 years ago, but two-thirds of the population of over a billion still depends on farming and allied activities.”Time has come to provide a new deal to the rural poor,” Banik said.
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