Analysis of Indian Budget 2007
Ajay Shah has the best analysis of this year's Indian Budget.
Highlights:
- Most depressing news is ban on futures trading in wheat and rice. Quoting Business Standard : It was a jarring reminder that India may be an IT superpower with a $1 trillion GDP, but there are many people at the top who are still thinking in the 1970s mentality of blaming futures traders, hoarders, profiteers and speculators for an economy-wide mismatch between supply and demand.
- Planned fiscal deficit for the new year is 3.23%. This is higher than historical target of keeping it below 3%. Higher deficit means government is spending more and it needs to either borrow or increase money supply. Both of them cause increase in inflation. Government has deliberately chosen the route of increasing "plan" expenditure as a populist measure in place of containing inflation.
- Peak customs rates have been decreased. This should reduce local prices and increase competitiveness.
- Other than the above, there is no progress on tax reforms.
- Expenditure on "plan" outlays have been dramatically increased (3.9% to 4.3% of GDP in last two years) while non-plan outlay is decreased (5.4% to 4.8% in last two years). Overall federal expenditure declined from 14.2% to 13.8% of GDP in two years.
- Plan expenditure is on schemes like "National Rural Health Mission (NRHM)" while non-plan expenditure is on things like salaries for police and teachers. The game-plan in election year is to take credit for launching schemes like NRHM. There is little evidence that these schemes work.
- There is some fresh thinking on education. There is a new scholarship program that will give INR 6000/year (a big enough scholarship for most families in India) to 100k students every year in grade 9, 10, 11, 12 (a total of 400k students nation-wide). This should allow the best 400k students in the country to get a decent education. (If implemented correctly).
