The Economist calls the Indian budget “an opportunity for bold reform spurned by India’s finance minister.”
The big challenge facing any Indian finance minister is that, as this one put it, the country is perilously close to the limits of fiscal prudence. This government, led by the Congress party elected last year, faces huge pressure to fulfil its promises to lavish money on agriculture, infrastructure, education and health care. But it suffers a massive fiscal deficit (see chart). Though the deficit came down somewhat in the past year and is forecast to do so again in the coming year, foreign credit-rating agencies were disappointed that Mr Chidambaram has, in his words, pushed the pause button on meeting the deficit-reduction targets imposed by a law passed in 2003. They argued that now, while the economy is growing rapidlyby around 7% last year and this oneit would be far easier to make difficult choices than later in this economic cycle.
As it was, Mr Chidambaram was given credit both by the left, for doing his best to meet his spending promises, and by those keen to see faster economic reform, for his tax cuts, deregulation measures and promises to consider further opening of the economy. But both groups were disappointed he had not gone further, and the minister must know that he cannot rely for ever on growth strong enough to allow him to have it both ways.
Swaminathan Anklesaria Aiyar writes in the Sunday Times of India: “The days of visionary Budgets are over. The unstated priority of Finance Minister Chidambaram’s Budget is to ensure that his minority government, uncertain of its political viability, survives a full term of five years. And so it is a technician’s Budget that implements suggestions of sundry expert tax committees, but steers clear of radical visions that may annoy its coalition partners… In this new political climate, there is no need any more for budgets to become vehicles of brave new visions. Especially when coalition politics makes visions more foolhardy than brave.”