India's Singh Tries To Reshape Economy

India's new budget aims to spur growth with free-market reforms. But critics say the finance minister's plan ignores the needs of lower-income citizens.

By , Staff writer of The Christian Science Monitor

IN Chandni Chowk, New Delhi's largest bazaar and a stronghold of India's pro-business opposition Bharatiya Janata Party (BJP), the country's Finance Minister Manmohan Singh is playing well.

"He is the best finance minister until now," says the owner of a photo supply store. For his business, this man says, the Indian government's new budget, announced Feb. 29, means "that costs will go down and customers will increase."

In fact, it took almost a week after the budget's release for criticism of the economic policies of Mr. Singh's ruling Congress (I) Party to coalesce. But on Monday, opposition parties in Parliament failed to force through amendments to the economic plan.

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Some economists and opposition politicians say Singh's policies favor the middle and upper classes at the expense of the poor, and that his proposals will do little to curb inflation.

Another bazaar shopkeeper, to emphasize his concern about inflation, pulls out two strings of 10 AA batteries, one priced a month ago at 42.5 rupees ($1.45) and this month's package, listed at 45 rupees ($1.55). A year ago, he says, the same batteries cost 36 rupees ($1.25).

"People were suffering under the socialist system," says Subramaniam Swamy, an opposition member of Parliament and an economist. "They think [Singh] is going to deliver them from that." Mr. Swamy says Singh is merely "tinkering" with the socialist system, and that he has not gone far enough to reform this economy.

The government of Prime Minister P. V. Narasimha Rao came to power nine months ago, with India near default on its $71 billion foreign debt. Since then he has cut government controls on the economy, sought out and facilitated foreign investment, and obtained the help of international lending agencies. Mr. Rao and Singh are trying to turn a stagnant, bureaucracy-bound economy into a market-driven, competitive one.

"I want the productive agents to be freed of bureaucratic controls," Singh said. Otherwise, "we'll miss the bus."

But problems loom ahead. Inflation persists at an annual rate of more than 12 percent and the government has not yet formulated a policy for dismantling unprofitable government-run enterprises that employ hundreds of thousands of workers. Both of these issues could trigger widespread political disenchantment with Rao's Congress (I) Party.

The budget combines trade-boosting measures - such as the partial convertibility of the Indian rupee, an end to the licensing of most imports, and reductions in India's high customs tariffs - with populist steps like income-tax cuts and a new process for allowing Indians to import gold.

The budget also aims to promote growth by reducing the amount of cash that banks must keep on hand, limiting government control over capital issues, and moving closer to allowing direct foreign investment in the Indian stock market. Singh has cut the government's deficit from 8.4 percent of gross domestic product to 6.5 percent, and says that he will bring it down to 5 percent in the year ahead.

Opposition politicians are skeptical that Singh's supply-side policies will do enough to spur growth. Jay Dubashi, an economist who advises the opposition BJP, says that freeing the market may benefit those actually in the market, but they are a minority.

"All this takes time," Mr. Dubashi says. "To that extent the poor - the people who do not have any property or have any [stock market] shares or have any land - I think will suffer."

Former Prime Minister V. P. Singh of the Janata Dal Party, in an interview in the newspaper the Hindu, said higher excise duties will be felt across the entire population, unlike the tax relief. Less than 1 percent of India's 850 million people pay income taxes. He also blasted the budget as "silent" on education and agriculture.

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