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

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Budget 2010: The State Takes a Back Seat

Should fiscal consolidation take priority over everything else?

The big picture in the Union Budget for 2010-11 is that the United Progressive Alliance (UPA) government continues to push ahead with a strategy of making middle/upper class consumption drive growth, while it gradually abdicates its role in channelling and financing investment. Those who are on the margins of the growth process will have their welfare programmes, but these are only for alleviation and they too are subject to the god of fiscal deficit reduction.

Consumption much more than investment has always fuelled the Indian economy, and it has been domestic consumption more than anything else that has helped prop up growth during the global financial crisis. During 2008-09 and 2009-10, cuts in indirect taxes, higher government spending and implementation of the generous salary recommendations of the Sixth Pay Commission (SPC) have been key to boosting government and private consumption demand and neutralising the impact of a fall in investment. One would have thought that the government would stay with this strategy for a while and not be swayed by all the noise about exiting the stimulus. One would have also thought that the government would simultaneously focus on fighting inflation. Yet, Budget 2010 has done exactly the opposite.

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