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India heads in wrong direction with new budget
July, 14th 2009

A US South Asia expert suggests that the Indian budget would perhaps limit the country's ascension to a global economic force and could limit the value of India-US partnership for Washington.

As Secretary of State Hillary Clinton has noted in advance of her trip to India, the US has an important stake in Indian success, writes Derek Scissors, research fellow in Asia Economic Policy at The Heritage Foundation.

"As its clout on the world stage increases, India can play a stabilising role in the broader Asia region, partnering with the US on a range of issues including maritime cooperation, nuclear non-proliferation, education, science, and defence trade," he writes.

"India also serves as a powerful example of a successful democracy in the developing world. On the economic side, unlike many of its Asian counterparts, India is consumption-driven, not export-driven.

"Its growth and greater prosperity therefore offer outstanding opportunities for American agriculture, industry, and services," he says. "The flip side of America's stake in India is that America loses when India takes a step backward."

That seems to have happened with the anxiously awaited Indian government budget for the next fiscal year, which puts political gain over long-term economic progress, Scissors suggested.

"This kind of fiscal irresponsibility may help India's ruling Congress party win more elections, but it will not help the country live up to its economic promise," he said.

"The budget in general will have pernicious long-term effects. The huge deficit is a heavy tax on the future that lowers India's growth trajectory. But there are additional devils in the details, in particular with regard to education and liberalisation."

For most of this decade, India thrived, benefiting tremendously from earlier liberalisation, which, among other things, drew large inflows of foreign investment, he said. But "now India is heading the wrong way on the economy".

The US-India relationship is multifaceted and can certainly thrive based on political affinity and geostrategic considerations, Scissors said.

"But the direction that Congress has set for the past five years, topped off by this budget, is going to slow and perhaps limit India's ascension to a global economic force. That could limit the value of the (US-India) partnership."

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