Conservative approach

COMMENT: Arvind Subramanian

The budget represented continuity rather than radical rupture from the past. If continuity disappointed the markets, that was in part substantive (the lack of radical policy reforms in the budget), and in part a matter of high expectations created by the election victory of the Congress.

The two big questions now are: Is the strategy of reliance on government spending right? And is there enough to get the private sector excited about investing in the economy?

The spending strategy can be evaluated against both stability and equity objectives. On stability, the budget has come down in favour of continuing stimulus rather than beginning fiscal consolidation. A clearer timetable for consolidation, with clear markers, might have helped square this difficult circle. A big plus is the FM’s strong commitment not to depart from the April 1, 2010, deadline for the implementation of the goods and services tax, which will be key for fiscal consolidation in the medium term. The government’s emphasis on the equity objective is absolutely correct. But it is also true that the budget did not announce any major reforms.

Arvind Subramanian, Senior fellow, Peterson Institute for International Economics