What the budget won’t say

There is near consensus amongst policymakers and their advisors that the economy is in for a rough ride till the end of next year. Some see it as inevitable, but I disagree. On my travels, I tend to meet two kinds of people. First, the ones who deal with billions of dollars of other people's money. They are fairly optimistic about India — it is the second fastest growing (large) economy and so on. They tend to float towards the higher end of our growth projections and are more worried about West Bengal Chief Minister Mamata Banerjee than RBI Governor D. Subbarao. But one in ten of these people, some of whom deal with large sums of money, foresee a hard landing for India. Capital protection strategies with call options — you name it, they want it.

The second lot are the financial economists. They all talk of a hard landing for India. Our own chief economic advisor, Raghuram Rajan, is a polished proponent of that school. He does, of course, speak positively about the demographic dividend, good long-term growth prospects, corruption and all that, but also points out that supply-side adjustments take time — five years at least — and that such adjustments cannot be hurried along. He comes close to saying "hard landing", even if he doesn't quite say it in so many words.

There is an alternative — the 15 per cent increase in public-private investment shows the way. Public-private partnerships are where the real choices in the policy space lie. Encouraging such partnerships in investment will put an end to "bad" expenditures. It would also lighten the impact of the decline in consumption growth this year. The bankruptcy of the leave-it-alone school when it comes to savings and investment is now evident. UPA economists followed this school of thought, only to see growth in real consumption levelling off at above the 3 per cent rate, and the great push of middle income and rural consumption growth is gone. The investment push need not be inflationary. It could be directed largely to sectors where public-private partnerships would bring in investment rather than squeeze it out.

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