India's Budget Called Inadequate for Growth

From Bloomberg News

India on Monday unveiled a budget plan that doesn't do enough to spur domestic and foreign investment to reverse the country's economic slowdown, analysts and investors said.

Finance Minister Yaswant Sinha's fiscal blueprint not only slows the pace of reform set in the last three budgets, but it reverses some of the opening of India's market to trade by raising import tariffs.

"He has run out of ideas to kick-start the economy," said A.K. Kinra, corporate vice president for finance at J.K. Industries Ltd., a tire maker in New Delhi.

India's gross domestic product growth has fallen to 5% from more than 7% in the previous three years as the country's inadequate investment in electric power, roads and ports has limited company expansion.

Although the budget commits the government to spending more on roads, selling stakes in state-owned companies and relaxing some restrictions on foreign investment, it retains a ban on foreign insurance companies setting up in India and leaves intact the expensive subsidies and bureaucratic controls that have damaged productivity and limited economic growth for years.

"It's not a 'big bang' budget," said Charan Wadhwa, a senior economist at the Center for Policy Research in New Delhi.

The government estimates that India needs to invest more than $26 billion a year for the next four years to improve its ports, roads, railways, and telephone and power-generation systems.

Last week there were riots in New Delhi to protest power outages, which cut off people's air conditioners and fans as the temperature soared to more than 100 degrees. The government estimates that India needs to spend about $39 billion on new power plants in the next four years to put an end to outages.

The budget promises to increase infrastructure spending by 35% this year. Yet with the budget deficit at about 6% of GDP, the government must rely on foreign investors if it's to meet that goal.

Since India enacted measures designed to lure foreign investment in 1991, the country has attracted $10.37 billion in foreign direct investments. That's not much compared with China, which received $45.3 billion in foreign investments in 1997 alone.

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