India: Don't Drop The Budget Ball
It is easy to see why Indians wanted to replace Prime Minister H.D. Deve Gowda. His inarticulate, country-bumpkin persona did not represent the giant South Asian nation well on the world stage. At a recent gathering of international statesmen and businessmen in Davos, Switzerland, there was an inordinate amount of gossip behind his back, indicating a lack of respect. Yet under Gowda, India's new march toward economic reform took several significant steps forward. There was new hope that, finally, India might compete with China in attracting foreign investment, deregulating the economy, and promoting growth. The fall of Gowda, and the subsequent resignation of Finance Minister P. Chidambaram, the government's chief free-market advocate, now threaten that progress. It could not have come at a worse time.
India's new pro-market budget for 1998 is now jeopardized. Chidambaram promised to dismantle India's 50-year-old socialist state and worked his magic through the proposed budget. It slashes individual and corporate tax rates, raises the ceiling on foreign portfolio holdings in Indian companies, and takes the first steps in making the rupee convertible. The budget projects a deficit of only 4.5% of gross domestic product, compared with 6.7% between 1990 and 1994. This could have resulted in a major cut in government spending and borrowing. The business community roundly applauded Chidambaram's effort.
Now, he and Gowda are out, and the new Prime Minister, Inder Kumar Gujral, India's fourth in a year, is in power. Gujral, who was ambassador to the old Soviet Union, has been a champion of neither free markets nor foreign investment. But now he professes to be a convert to the market economy. Nothing would prove his sincerity on this issue as much as bringing back Chidambaram as Finance Minister. The next step should be to put his full authority behind the new budget and push it through despite strong opposition from the left.
The amazing commercial success of millions of Indians living in the U.S., Europe, Africa, and Asia suggests that a change in domestic economic incentives could bring prosperity to practically all of India's people. India has a chance to plug into the global economy and profit immensely from it. It should take it.