An Indian budget for the long run

GROWTH in India looks like it is stabilising at around 7.5-8 per cent in the next few years, the fastest of any major country. If the mood was to change in favour of deep structural reforms, the prospect may improve even more. But for now, India appears to be a steady bet for long-run success.

Arun Jaitley, the finance minister, presented his third budget on Feb 29. Growth is around 7.5 per cent, but the economy offers a mixed picture, partly because of the rather unusual experience of deflation, with the wholesale price index falling for 15 months in a row, driven down by declining oil prices. Yet, with consumer prices rising by around 5.5 per cent a year, the notion of deflation remains technical for most households.

The gross domestic product (GDP) deflator is around one per cent. This mixed picture has been reinforced by two successive years of drought, leading to distress in rural areas, amid widespread suicides of farmers hit by the global commodity price fall. In the urban economy, the problem is the legacy of bad debts hanging over (and undermining) the nationalised banks.