BUDGET SPECIAL: Yashwant Sinha writes India econ dream-run ending .

[K.Karthik Raja]

BUDGET SPECIAL: Yashwant Sinha writes India econ dream-run ending .
INDIAN ECONOMY SHOWING DISTINCT SIGNS OF SLOWDOWN
-------------------------------------------------
By Yashwant Sinha
.
Every Budget of the Government of India has to be prepared in the
light of the prevailing economic and the political situation. This
year's Budget will be no exception. The United Progressive Alliance
government inherited an economy on the upswing, when it assumed office
in 2004. The annual growth rate of the economy in 2003-04, which was
the last year of National Democratic Alliance government rule was
8.6%. What was even more remarkable was the fact
that all sectors of the economy were in the growth mode.

For four years now, the UPA government has enjoyed a dream-run.
Industrial production has been on the rise year after year, the
domestic savings rate has been going up, government revenues have been
buoyant, foreign capital inflows have been larger than desirable,
foreign exchange reserves have scaled new heights, stock markets have
been booming, export growth had been healthy because global growth
rate has been strong and monsoon rains have been
adequate.
.
.
This dream-run seems to be ending now. The prevailing economic
situation does not appear to be bright. The Indian economy is showing
distinct signs of slowing down. Agriculture has been in distress even
earlier, but the industrial and services sector--which lent strength
to our growth story--are also now slowing down. The growth rate of the
index of industrial production during the first nine months of the
current year is only 9% compared with 11.2% during the same period
last year. This slowdown is evident across all sectors of industry.
Core sector growth stood at 5.7% this year against 8.9% last year. The
growth in central excise duty collection has decelerated from
7.4% during the first half of last fiscal to 3.4% this year. This,
coupled
with the slowing down of the global economy, as a result of the U.S.
recession is bad news for India.
There are other issues of concern in the economy. I have already
mentioned rural distress. The large number of farmer suicides and the
non-stop nature of this phenomenon have raised serious questions about
the management of the rural economy by the present government.
Inflation, especially price rise of essential commodities, has made
the life of the common man miserable. The recent increase in petroleum
product prices will exacerbate the situation
further. The mismanagement of foreign fund flows and the consequent
strengthening the rupee against the U.S. dollar has made many of our
exports uncompetitive. Large layoffs appear to have become the order
of the day, especially in the textile and the information technology
sectors.
The rising subsidy bill and their off-budget treatment have
already made a mockery of the Fiscal Responsibility and Budget
Management Act. The expected, but unavoidable, burden of the Sixth Pay
Commission will further add to this problem. Since this is the last
Budget of the UPA government and is bound to be an election-oriented
and populist budget. So, while the economic situation demands of the
finance minister to take tough decisions in the Budget, cut the
Budget deficits in accordance with the FRBM Act, carry forward
economic reforms even if they are unpopular in the short run, push for
infrastructure development, quite the contrary may be the case when
the finance minister unveils his budgetary proposals.
Thus, while the Budget may bring good news for some sections of
the population, I have no doubt that it will be bad news for the
economy as a whole. The UPA government inherited an economy on the
upswing, it will be leaving behind an economy on the downswing. End

( Yashwant Sinha. Sinha was India's finance minister during 1990-91
and 1998-2002 and external affairs minister during 2002-04. He is
currently a member of the Rajya Sabha, representing the Bharatiya
Janata Party.)


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