March 02, 2013

India headed for economic doom, prominent US thinktank says


Derek Scissors of The Heritage Foundation says that the Indian economy is in dire health because manufacturing that should lead the Indian economy that would create jobs for the swelling ranks of young Indians is refusing to take off.

TNN | Mar 3, 2013, 05.34AM IST

NEW DELHI: India is heading straight for economic failure post-Chidambaram's budget as a direct result of the lack of meaningful economic reform, says Heritage Foundation, an important conservative thinktank in the US. Assessing finance minister, P Chidambaram's budget, Derek Scissors of the Washington-based organization said that it "leaves India on the same, failing course it's been on of undisciplined spending and unrealistic expectations".

The Indian economy is in dire health, he said, not only because Indians' incomes have stagnated, income growth slowed and consumer inflation is high, but because manufacturing that should lead the Indian economy that would create jobs for the swelling ranks of young Indians is refusing to take off.

"Services lead in large part because the labour market is more flexible in services industries than in manufacturing. Rather than labour market reform, the Indian government offers a state-led infrastructure program. But the infrastructure program has no chance to succeed while property rights to land remain so ill-defined," he explained.

According to him, India is making the same mistake as the US like substituting spending since reform is politically difficult. "The proposal for this year is a triumph of hope over courage: Spending is to increase by 17%, yet the deficit is to fall to 4.8% of GDP. This won't happen. Spending will have to be curbed or the deficit will balloon again," he said.

The high growth between 2004 and 2007 was largely due to the reforms of the years before. "Without a sustained reform process, which will take considerable time, India will not return to the days of fast growth. Government revenue and GDP will continue to disappoint, deficits will continue to be high, and consumers will continue to suffer. This is the path India remains on," he added.


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