Modi Should End His Own Honeymoon

In India, a new government's first post-election budget is usually a time to hand out rewards -- freebies and tax cuts for the ruling party's loyal supporters. This might seem like good politics as well as good manners. But if Indian Prime Minister Narendra Modi wants to meet the high expectations that markets have set for him, he needs to take a different path when he presents his budget on July 10.

In fact, India's troubled finances are going to require two tough budgets in a row. At 7 to 9 percent, the combined fiscal deficit of the central and state governments has been unsustainably high for years. Blame for this can be laid upon the previous Congress Party-led government, which produced two soft budgets after being elected for a second term in 2009. The ruling coalition had already slashed taxes in 2008 to combat the fiscal crisis, and it decided to go slow in rolling these back. It increased subsidies for oil, fertilizers and food. It announced big increases in government support prices for crops, helping farmers but stoking food inflation.