26th February

Hey, Big Spender

The article talks about the recent fiscal stimulus packages provided by the government and its implications on the economy. The article also advocates measures in terms of monetary policy as well since much has been done on the fiscal arena.

The recent 2% cuts in excise duty and the service duty would mean a hole of Rs.30k crores in the fiscal deficit. But as a surprise comes in the form of election dates, the model code of conduct is set off and thus govt has to be careful not to attract a charge of electorally motivated measures. The stimulus would definitely boom various sectors across the country but the question is whether these benefits would reach the end consumer or not since the prime objective of the stimulus package is to increase spending. S&P is not optimistic about growth prospects of India as the fiscal deficits already sees 11% figure and if the rating degrades further, it would make it very difficult to attract foreign money besides just depreciation of rupee. 

The tough job would be for the next govt since the burgeoning fiscal deficit would make budget management and debt financing harder. It has to keep a check on wasteful spending while vigorously implement stimulus packages as well as its flagship programs. Given the ample room in the domain of monetary policy, RBI should not step in to touch upon the long awaited interest rate cuts.

Double Trouble

The article cautions the Indian government to be watchful as the neighbors, Pakistan and Bangladesh, get into trouble.

In Pakistan, SC banned opposition leader Nawaz Sharif from contesting elections while told his son Shahbaz Sharif to step down from his chief ministership post in Punjab province. Nawaz Sharif demanded reinstating the SC judges sacked earlier by Parvez Musharraf. However, the President Asif Ali Zardari fears that, if reinstated, the judges would give away harsh judgments against him on the corruption charges. This could lead to wide-spread civil disobedience across Pakistan which cannot come at the worst time when Taliban is trying to take the country hostage, the first step being Swat Valley. In Bangladesh, the Bangladesh Rifles resorted to mutiny on the pay and perks issue as they killed some of their seniors officers and the rest of them being taken hostage. However, the situation would be better under control since the government of Sheikh Hasina Wajed has confirmed the acceptance of their demands. 

For Bangladesh, the recent election win of Awami League has raised hopes for long term political stability after the interim military rule. But, for Pakistan, a civil disobedience would give chance for the military and Islamic extremists to exploit the situation. For India, it is important to watch carefully the developments and remain on guard.