The last few months have shown that the announcement and the measures thereafter by the US Fed regarding the pulling back on Quantitative Easing could not have come at a worse time for the Indian economy. The issue with focusing on short-term measures as expected has been unsuccessful and the government has been rather conservative in undertaking long-term measures to boost the economy with the general elections and twin deficits in mind before the all-critical interim budget. The problem is that it is as much a psychological issue as economic and the rupee has been allowed to find a new permanent level against the major currencies of the world with the belief that an event only as substantial as another developed world crisis will lead FIIs looking to emerging markets for returns. The announcements made in the interim Budget have several positives for the economy in terms of gaining back investor confidence. Fiscal deficit has not only been maintained but has been reduced to 4.6% of GDP with the CAD expected to be around 2.5% of GDP. It is difficult to evaluate the performance of the finance ministry and RBI and even easier to blame either, but it can be argued the measures could have come much earlier, which would have helped the rupee. But the measures to keep the twin deficits within its targets, at the cost of delaying long-term measures, even though seems an election-driven decision, does a world of good to investor confidence. This, coupled with a relief to the auto industry and increase in defence expenditures, is set to improve confidence. Investment is the necessity of the hour, and whichever government comes into power should focus on boosting the manufacturing sector.
University of Edinburgh
It is disappointing that the Union finance minister P Chidambaram has cared two hoots about the salaried class. He has not raised income-tax exemption limit despite the continuing rise in the prices of essential goods and services. It is strange that the finance minister has not thought of reducing the tax burden to the salaried class. Denial of increased tax exemption spurs demand for wage rise.