Friday, March 23, 2012

Investing in India made harder

Business Times: Fri, Mar 23
ON March 16, Indian Finance Minister Pranab Mukherjee presented the 2012 Union Budget under the shadow of his fiscal calculations going awry for the Financial Year 2011-2012.

This year's budget is a mixed bag - while some proposals are pleasantly benign, others are quite disheartening as they have a retrospective effect.

The Indian Government's Economic Survey for Budget Year 2011-2012 indicates that the Indian economy is expected to grow by 6.9 per cent in 2011-2012. This represents a slowdown for the country, given that it has grown 8.4 per cent in each of the two preceding years.

With agriculture and services continuing to perform well, India's slowdown can be attributed almost entirely to the weakening of industrial growth. Positively, the economy is expected to grow by 7.6 per cent in 2012-13 and 8.6 per cent in 2013-14.

The fiscal deficit during the year 2011-2012 stood at 5.9 per cent of the gross domestic product (GDP). This deficit has primarily grown due to lower direct tax revenue and increased subsidies.

For 2012-13, the fiscal deficit is expected to be around 5.1 per cent of GDP. However, with a large share of existing subsidies going towards the import of oil, prices of which are moving northwards, controlling the fiscal deficit is going to be challenging.

Besides the fiscal deficit, the government also faces other key problems. It has to ensure the continued moderation of inflation, address upward trends in crude oil prices, surmount political obstacles to carry out critical reforms and manage asset price bubbles in real estate and the stock market.

Despite these challenges, the growth outlook and price stability for the Indian economy at this juncture looks more promising compared with the earlier year. For one thing, the infrastructure sector should get a boost as the government is targeting to invest US$1 trillion during the next five years. Half of this sum will be raised by the private sector...

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