India: A Rising Tide Of RED Ink!!

The Interim budget announced by Pranab Mukherjee shows a red ink slashing the Indian Economy. The next Government will either have to

"Get this sea to recede or build dykes to protect the land".

So says this web-link, and I so agree with it!

The next couple of years won't be easy to digest and are likely to be tough ones for the world economy and for India.
But according to me, India has been highly insulated from Economic recession(oot Cause is Subprime Crisis), but this storm will show its effect and will be a sustained phenomena for the upcoming one and a half year or so.
It could be said that India is observing a growth recession, which usually means an economy growing at such a low pace that more jobs are been shed then been added.


Governments are expected to heavily influx market during such growth recessions even though tax collections are anaemic. They have to run in heavy fiscal deficits. The main problem is that the entrant political government will have very little power to attack this problem and would again add up to fiscal and other deficits, again drowning economy back to '91 kind of situations.

The Indian Fiscal Deficit including Budget Bond Issuance is now at a record high. This situation for India is ironical. Manmohan Singh took the first stab at bringing down the deficits in the early '90s. Then P Chidambaram tried to cut the deficit during his reign as Finance Minister in mid '90s.

Statistics

The stand-in Finance Minister candidly admitted that a record slippage was likely to push the fiscal deficit or external borrowings, in 2008-09 to three times the value of its initial target of 2.5% of GDP after taking into account all off-budget bonds.

The Stock Market reacted negatively and BSE's benchmark index ended at days low.

According to FinMin there can be a deviation of upto 20% from the projected values in the budget.

Tax collections, which contributes nearly 90% of revenue to government will be on a low air this fiscal year.

In case of 3G spectrum(non-tax receipts), the government will raise approx. 20,000 crore RS in 2009-10(which is nearly half of what was estimated and is expected by the Telecom ministry's projections).

The strain is to show upto 164% increase in the total fiscal deficit.

The fiscal deficit is expected to be about 5.5% of the total GDP(excluding crude).

It is estimated that average price of crude wil be below 70$ a barrel.

In all seeing a drop of nearly 12% GDP in Japan(worst in last 35 yrs), India is still fairly insulated nut the this is just the start of recession India will have to manage and keep up the pace of Growth so that the next fiscal year can be handled easily and without any strain..

But I would like to raise the point which I always use to ask-
The last five years were the one long clash between politics and economics. And there are no prizes for guessin which side did win......................