India’s Financial Sector Looking Towards The 2014 Elections

India’s financial code for the fiscal year 2013-2014 (from April to March) is vague and generic, not enough substance to generate debate between the various opinions. The document, presented to the Parliament by India’s Finance Minister Palaniappan Chidambaram, consists of a series of horizontal proposals, both optimistic and articulate. It doesn’t satisfy any particular sector of the economy, and it allows the government to proceed in its course. Objectively, New Delhi’s room to maneuver has been restricted. The growth rate of India’s GDP is a far cry from its peak at 9.3% in 2010, when India last was able to credibly challenge China’s place at the top of the list of the world’s fastest growing countries. India’s wealth in the last quarter grew by only 4.5%, the lowest showing in many years. Meanwhile, inflation is still not under control and investment is conspicuously absent, both domestic and foreign, scared away by the lack of a serious reform policy. Important issues that have not been solved are still hovering in the background: the lack of infrastructure, the continued presence of a massive bureaucracy, corruption, and a climate that is hostile to both new ideas and the doing of business. The state budget for the next fiscal year is trying to straighten an imperfect circle. It keeps in mind the economic recovery and the nation’s accounts, but does not forget that 2014 is an electoral year. The measures appear to be an exercise in equilibrium, or, in the case of its critics, incoherent. Public spending has increased to fund subsidies to rural areas, healthcare, and education. For the first time, measures have been introduced to sustain the economic development of women, as well as a tax on luxury in the form of an increase in import duties. Perhaps more clamorous, but hardly significant in economic terms, is the introduction of a one-time surcharge of 10% on the highest incomes. The ambition to have its books in order and social equality rests on the estimation of a new GDP growth rate of more than 6%. It is an optimistic goal, a bet against time, and so the newly unveiled budget plan is hindered by too many unknowns. Among these, the most insidious is the political spin game between the government – which is tempted to try more radical measures – and its strongest component. The Congress Party offers the image of a reassuring standard-bearer for the poor. The ballot boxes next year will be decisive, and so the inexplicable act of opposing the government to which it belongs is seen as a necessary tactical move.