New Delhi sources have stated that one of the least enviable jobs in the world at the moment has to be that of Indian finance minister. Arun Jaitley will present his fourth annual budget to India’s Parliament on Wednesday amid terrible headwinds mostly caused by his government’s bewildering and disruptive decision to invalidate 86 percent of India’s currency last November. If he’s to revive growth, the first thing he has to do is rethink his priorities.
The government’s official estimate of 7.1% GDP growth this financial year (which began in April) is widely doubted and doesn’t take into account the chaos wrought by demonetization. The International Monetary Fund predicts growth will come in closer to 6.6%, or a full percentage point below earlier estimates. And these numbers conceal even more weaknesses. Most glaringly, Indian investment has shrunk for the last three quarters for which reliable data is available.
Under Prime Minister Narendra Modi the government’s
growth strategy has rested on two fundamental assumptions. First, there’s the
unshakeable belief that India is so attractive a destination for capital, given
the weakness in the rest of the world, all the government needs to do is tweak
the investment climate and money will pour in.
Meanwhile Jaitley’s earlier budgets have benefited hugely
from low oil prices, which have allowed the government to eliminate fuel
subsidies while quietly raising taxes on gasoline to help pad its accounts and
pay for a sharp increase in spending. Further declines in crude oil prices are
hardly likely to come to the government’s rescue this year. At the same time,
other calls on the purse have grown. Modi is likely to want a few giveaways in
the budget to appease those hurt most badly by demonetization.
