Cautious Beginning

Mr Sinha is correct when he says that the major problem with the economy is a marked slowdown in certain sectors as a result of which the growth rate declined. He is also right in observing that the way out of this is to speed up spending, both public and private. He is further right in arguing that the increased spending should be in infrastructure in as much as it is the slowdown in investment that brought on the general slowdown in the first place, and the economys ability to sustain high growth is limited by the inadequacy of its infrastructure. But where he does not have an answer and it shows up somewhat pointedly is on the question of resources. He has committed himself to restoring the revenue balance, which at a time of sluggish revenue collection, can only mean a cut in spending. He also wishes to step up expenditure on the core sector. He can only do the latter if non-development expenditure is cut and the capital market, at least for infrastructure project issues, revives. There is no sign of the former and little sign, as yet, of the latter.

Mr Sinha is also right in stressing the revival of exports. His assertion that he does not want a run on the rupee is unexceptional. No finance minister, not even one who believes a depreciating exchange rate facilitates exports, will want it. But the governments belief in swadeshi and the assertion that external liberalisation has gone too fast ring alarm bells. Exports are not rising simply because business finds it easier to sell domestically. If tariffs are raised further, then the domestic market will become even more attractive to Indian business.

The finance minister has assured that MNCs will not be thrown out and are welcome as India needs investment. But he has reiterated his partys stance that they are not welcome everywhere and promised that the consumer goods sector, priority and non-priority areas will be clearly defined. However, it is difficult to define these categories rationally, and ultimately there is likely to be a good deal of arbitrariness. For example, consumer goods like clothing and toys will surely not be priority but Indias export efforts will be greatly aided if new technology comes in through foreign investment in these areas.