Indias Finance Minister is a veteran politician who has been in the federal ministry in various capacities earlier. He again became Finance Minister in December 2008 and last week gave a speech in Parliament that left most people wondering on various fronts. Why did Mr Pranab Mukherjee not address the real issues?
This interim budget doesnt really count as an exercise in economic policy, as it would be unfair on the incumbent governments part to decide what the incoming government will implement. Everyone expected an election speech, where the government would celebrate its achievements. Its been a dream run in India during the past five years where growth has accelerated at a blistering pace. Foreign investment has poured in from all quarters, jobs have grown at a never before pace and even the normally sluggish agricultural sector has done remarkably well. Why then did the Finance Minister tone down everything and ended up only with some shy vague remarks on how the government has made all this happen?
In India now, there is a threat of job loss that is hanging over almost every urban Indian not working in the state sector. While everyone has been putting up a brave face, several firms have been firing its employees in small, unnoticed batch sizes. When this happens, the stealth leaves almost everyone nervous. The newspapers keep suggesting that job losses are around the corner but can never estimate where and how many jobs have been lost. So even if the total number is insignificant, the message it has sent is scary. The labour minister says the half a million job losses is only the tip of an iceberg while the finance minister says there will only be pay cuts and no job losses. Not a well coordinated response to an issue that could send at least some urban young voters in a tizzy. What is required is measured reassurance that also does not go over the top and lose credibility totally. Amidst the uncertainty there are silver linings about the Indian economy that need to be emphasised.
Agriculture has been doing well now for three years running. It is fortunate for India that agriculture this year again will do well and pull up industry that is doing poorly and the service sector that is huffing and panting. Agriculture employs more than 56 per cent of Indias work force and nearly 70 per cent of the population depends on agriculture. A large amount of consumption in India is driven by agriculture income and therefore when the farm sector does well, markets are buoyant. Historically, agriculture has suffered on account of bad weather and poor monsoons with unfailing regularity, but the weather gods have smiled on the Indian economy for three consecutive years. Even when exports have dampened because the US retail market is sluggish, the domestic market fuelled by high farm prices and good growth provides adequate demand for the industrial and the service sector in India.
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