ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Ecstasy and the Agony

The budget's strategy for stepping up growth in the near term rests on certain key premises: (i) fiscal consolidation is under way; (ii) fiscal consolidation and reduction in administered interest rates will lead to lower lending rates; and (iii) lower interest rates, along with continued deregulation, will make for higher investment and growth. Each of these premises needs to be carefully examined.

Yashwant Sinha’s fourth budget in a row has evoked ecstatic reactions from the business community and the pink press. The finance minister has won plaudits all round for affirming his commitment to what are described as ‘second generation reforms’: downsizing government, full-blooded privatisation, easier retrenchment of labour, further de-reservation of the small-scale sector and deregulation in the fertiliser, petroleum and pharmaceutical sectors.

The cuts in administered interest rates and the removal of direct tax surcharges, coming on top of these, meant that industry’s wish-list had been fully granted, as more than one spokesman of industry gleefully acknowledged on television. The paradigm shift initiated in 1991 and pursued haltingly since was finally on its way to completion.

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