Top economists and industrialists have all blamed the government for not doing anything to reduce India’s economic pain. Even politicians have joined this blame-game. The point being made is the same — the next proper Budget will be prepared only by July, so the government will have lost precious time in reacting to the crisis, which is deepening with bank credit shrinking in recent weeks, and ditto for industrial production. But, ‘Is the deficit a stimulus’, February 17, brings out the fundamental inconsistencies in their position.
A higher deficit does not always translate to more spending in items where there is a growth slowdown. If the money is spent on the poor who buy mainly food, how does this raise the demand for steel or automobiles? More importantly, the Budget deficit has to be financed from somewhere. If this is to be done through greater market borrowings, as is inevitable, this will cause interest rates to rise and that, in turn, will affect India Inc’s ability to raise money at low interest rates! So, it’s a case of damned if you do, and damned if you don’t. India’s economists and industrialists don’t really know what they want either, they’ve just joined the chorus of those looking at someone else to solve their problems.
Aashish Singh, Mumbai
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