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The goalposts are too close

The budget session of Parliament gets underway with the Manmohan Singh government signalling it will continue economic policies that brought it back to power.

india Updated: Feb 22, 2010 23:12 IST

The budget session of Parliament gets underway with the Manmohan Singh government signalling it will continue economic policies that brought it back to power. President Pratibha Patil’s inaugural address is heavily loaded with a reformist economic agenda that incorporates large-scale income transfers to those farthest from the growth orbit. Last year’s financial crisis and drought provided adequate intellectual underpinnings for fiscal expansion. But with both behind us, the absence in Ms Patil’s speech of a stated intent to return to prudent spending sticks out against an ambitious welfare programme. Growth alone will not deliver the funds we need for building physical and social infrastructure; to be a successful facilitator, the government needs to be able to manage its finances better.

Physical infrastructure — the necessary condition for sustaining medium-term growth rates in excess of 8 per cent — is critically dependent on our fiscal health, even if the government restricts itself to financing merely the viability gap. Independent observers reckon India could lose up to 10 per cent of its potential output in the later part of the decade if it continues to build ports, power plants and highways at the pace it is doing. Money for all of this is available — outside India, if not inside — but its flow depends on the State’s commitment to meeting self-imposed targets. The goalposts, Ms Patil’s address sets out, are too close and the audience would have been rewarded to learn how even these will be reached.

The sufficient condition for a self-exciting system is a healthy, educated workforce that is capable of contributing to, and benefiting from, an unshackled economy’s growth impulses. The UPA’s agenda for education, health and employment is a temporary, but necessary bridge between the reforms-haves and the have-nots. A more permanent structure is emerging — some would argue too slowly — as social welfare entitlements are increasingly being formalised. Some in the plethora of schemes Ms Patil has dwelt upon trace their history to half-a-century ago. A simpler set of programmes with legislative backing makes for a more accountable system. But as more social spending travels down, leaks in the delivery pipes can undo all the good economics and good politics the UPA has embarked upon.

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