Extraordinary circumstances sometimes call for ordinary responses. The interim budget for 2009-10, by resisting the regulatory reflex to a rapidly deteriorating external situation is the strongest signal yet that our economic managers think enough has already been done to insulate India. On current indications, the economy next year should not be too far off the 7.1 per cent growth rate it is slated to notch up in 2008-09. The fiscal deficit will, in the process, keep yawning — it will be a long climb back from the precipitous fall to 6 per cent in 2008-09. Pity our policy makers didn’t fix the fisc when the going was good; the economy’s capacity to absorb more global shocks is shrinking with each percentage point rise in this statistic.
Having spent a fifth more than initially budgeted in 2008-09 — a year when taxes will fetch a tenth less than targeted — the UPA government’s commitment to social sector spending is not in doubt. Neither is its calibrated response to the worldwide recession. Next year’s spending on flagship social schemes and infrasturture, apiece, is Rs 30,000 crore higher. But tax revenues for 2009-10 are expected to stay below the budget estimates for 2008-09, reversing an established trend where the tax-to-GDP ratio has been rising for well over a decade. The Rs 150,000 crore spurt in government spending in 2008-09 cannot be regarded as a one-off; projections for 2009-10 establish that the trajectory has been moved upward. The virtue associated with profligacy will wash away once the economic crisis blows over, but the seductions of a spend-and-borrow regime will be hard to cast off.
The irony of the last budget of the outgoing government is that it comes after the tide has turned. The achievements the economy has notched up in each of the four preceding years are remarkable. It does the UPA credit for not succumbing to the temptation of fresh giveaways, particularly when it would have conventional economic wisdom on its side. The Vajpayee government handed over fairly healthy government books to Manmohan Singh. The next government’s inheritance need not have a bigger hole than there is already. Continuity in economic management despite a change of the political guard portends well for India.