For India's Finance Minister, Stakes Are High Ahead of Annual ...

The stakes are high for India?s finance minister, Pranjab Mukherjee, as he delivers the annual statement of the Union Budget.

Will Mr. Mukherjee do anything today to answer the growing chorus of criticism of his government?s poor record of economic management and failure to push forward its own economic liberalization agenda? Will anything in today?s budget help resuscitate the economy?s flagging growth rate?

The last few months haven?t been kind to the Indian economy. Nor has its steward, the aging political veteran and all-purpose fixer, Mr. Mukherjee, been able to do much, if anything, to stem the tide. Just a year ago, after two straight years of economic growth above 8 percent, there was talk that the country might join China in the exalted league of major economies with sustained double-digit growth.

That?s been revealed to be a pipe dream, as India recorded only 6.1 percent growth in the last quarter of 2011. When the dust has settled and the final statistics are in, it?s likely we?ll find that the economy has grown at under 7 percent for the fiscal year that?s coming to an end on March 31.
While 7 percent growth is beyond the wildest dreams of any developed country finance minister, as the world digests the aftermath of both the global financial crisis and the Eurozone crisis, it?s a poor performance for a large emerging economy like India.

The underlying fundamentals of high domestic savings and investment ? even given the leakage caused by fiscal profligacy ? suggest that the economy shouldn?t be much below 8 percent growth.

That?s because textbook economic growth theory tells us that a savings to investment rate of 35 percent, and an incremental capital-output ratio of 4, both of which India has, if not better, should give the country a potential growth rate of 8.75 percent. Even allowing for the global slowdown, falling below 8 percent is bad news, and below 7 is appalling.

A government?s budget statement can?t create rapid economic growth, but it can certainly enable it (or do the opposite). And higher growth is a crucial means to the end of poverty reduction, and so arguably more important for the ?aam admi? (common person) than for ?India Inc.?

Will Mr. Mukherjee?s budget answer the call?

We?ll know shortly?.

Source: http://india.blogs.nytimes.com/2012/03/16/can-indias-mr-fix-it-spur-growth/

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