“Fundamentally sound,” approves USIBC.
Bureau Report
WASHINGTON, DC: Reactions among U.S. opinion-makers to Finance Minister P. Chidambaram’s budget ranged from cautious embrace to caustic disapproval.
The U.S.-India Business Council (USIBC), a trade group representing global companies doing business in India and several top Indian firms, welcomed the budget, saying that it is “fundamentally sound.”
“The government of India recognizes that a growth rate of 5 percent will not run its economic engine fast enough to create the jobs necessary to put India’s young population to work,” USIBC President Ron Somers said in a statement.
Pointing out that “the present threat of slowing growth is not dissimilar” to the one experienced two decade ago, which forced India to liberalize its economy, Somers said: “This government well remembers the under-employment so rampant at that time, and in this 2013 budget, the Finance Minister has taken some corrective steps necessary to revitalize investor enthusiasm, spur growth, and tame government spending.”
The USIBC also applauded the move to accelerate public sector divestment, saying it will “stimulate greater efficiencies and productivity.” At the same time, the trade group called for more liberalization measures in sectors such as insurance, pensions, defense and retail.
But not all have been as charitable to Chidambaram’s budget, his first since he returned as finance minister last year.
Arvind Subramanian, an economist at the Peterson Institute for International Economics, a Washington-based think tank that studies international economic policies, wrote that the budget disappointed in repudiating fiscal populism.
“In a very crude sense this budget is classically populist: soak the rich to pay for more redistribution,” Subramanian, a former International Monetary Fund economist, wrote on the Peterson Institute website.
“This budget has fallen short in continuing the rapid buildup of expenditures, of a durable nature, at a time when economic circumstances warrant the opposite,” he wrote. “This budget has fallen short in not moving away enough from the old assumptions of Indian political economy. The last few months seemed to suggest that prudence, not populism, would be not just good economics but also good politics. It may turn out that the last few months fluttered only for this budget to deceive.”
Another big critic of the budget was India watcher Derek Scissors, an economist at the conservative Heritage Foundation.
In a blog titled “India Stays on Path to Economic Failure,” on the organization’s website, he wrote that the budget “leaves India on the same, failing course it’s been on of undisciplined spending and unrealistic expectations.”
Terming the budget as “a triumph of hope over courage,” he wrote that India will not be able to reduce the deficit to 4.8 percent of the GDP. “Either spending will have to be curbed or the deficit will balloon again,” he wrote. “The India government keeps acting as if the economy will magically return to its rapid expansion of 2007, where incomes were growing so fast they outpaced even high consumer inflation, and government revenue poured in to cover wasteful spending.”
Heritage has been largely critical of India’s economic policies. In its 2013 index of economic freedom, the conservative think tank placed India at 119th, just above Pakistan (ranked 121) and Nigeria (120).
The Wall Street Journal meanwhile termed the finance minister as walking the tightrope “raising social welfare spending to please voters ahead of upcoming elections but reducing subsidies and increasing taxes — especially for the rich — to try and stave off downgrade threats from ratings agencies.”