Saturday, February 27, 2010

Still Tinkering With the Economy in 2010

Annual Indian socialist budget tamasha was yesterday. In the intense debated leading up to and after the budget presentation, no one asked the question, "Will (Is) our economy more free than it was before budget?"

Based on the highlights, while we like the tax cuts on all income groups and dismayed at non-increase in defence spending at this hour of peril, similar to the disastrous Manmohan policies of under spending on defence to control growing deficits in early 1990s, overall government of India still has way too much control over people's economic lives and Congress I is still tinkering with each and every government controlled lever instead of dismantling the entire socialist economic machine.

Why exactly BJP is boycotting the budget and will vote against it? If BJP wants to agitate against food inflation, what are its ideas that were not included in the budget that could have controlled inflation of basic goods? While politically taking on Congress I over the unpopular petrol/diesel price increase is understandable, we are not sure BJP should vote against the bill itself. We agree with BJP that the budget can be better. We hope BJP proposes alternative budget ideas, if only clarify its own economic message.

We have highlighted one reason for food inflation is the reduced yields of food crops because of perverseness of Urea subsidy put in place due to fertilizer industry rent seeking lobby. We were hoping for complete elimination of subsidies for fertilizer industry. It was not to be, but perverseness of Urea subsidy has been replace by subsidies based on nutrient of fertilizer. So socialism and rent seeking of fertilizer industry will continue, but at least impact on food crop yields will be reduced.

There is nothing about complete divestment of public sector firms which are still a huge drag on Indian economy - such as "Rs 16,500 crore to public sector banks to maintain tier-I capital" - although there are plans to divest in tiny increments to "raise Rs 25,000 crore from disinvestment of its stake in state-owned firms." We would wager that funding would be provided to government banks but divestment target money will not raised by this time next year. We are not sure if the "apex-level Financial Stability and Development Council" has mandate to make Mumbai an international financial center on par with Hong Kong, Tokyo, New York, and London.

Overall the tinkering of socialist Indian economy by the current government continues.

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