【纽约时报】India to Boost Spending to Spur Growth

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India to Boost Spending to Spur Growth
http://www.nytimes.com/2009/07/07/business/global/07rupee.html

By VIKAS BAJAJ and HEATHER TIMMONS Published: July 6, 2009

NEW DELHI — India’s finance minister unveiled a sweeping budget on Monday that aims to stimulate the economy through increased government spending and tax breaks. But the plan was largely silent on foreign investment and the sale of shares in state-owned companies -- areas in which investors had been anticipating significant changes.

The stock market, which had rallied in recent weeks on expectations of major financial reforms, tumbled as the finance minister, Pranab Mukherjee, spoke to parliament, and it continued falling afterward. The S&P CNX Nifty stock index closed down 5.8 percent. The Indian rupee depreciated 1.2 percent, to 48.48 to the dollar.

Domestic and foreign investors were disappointed that Mr. Mukherjee and his Congress party, which was re-elected in May, did not use the budget presentation to unveil the kind of changes they believe are necessary to stimulate investment and reduce the role of the government in the economy. In recent years, the budget speech has set the tone for the Indian government’s economic policies for the coming year.

The government delivered a “lot of nitty-gritty stuff and housekeeping,” said Subir Gokarn, chief economist at Standard & Poor’s Asia-Pacific. “Change will be gradual and incremental; don’t expect any radical, dramatic movements.”

True to the Congress party’s focus on the aam admi , or common man, Mr. Mukherjee spent most of his hour and a half speech discussing government programs for the poor, like a rural employment program guaranteeing 100 days of work a year to each indigent family. The government will increase spending by 144 percent on that project, to 391 billion rupees ($8.1 billion), this fiscal year.

Mr. Mukherjee said the government would return India’s economic growth rate to 9 percent, but he emphasized that it would do so in a “more inclusive” manner. He set a target of halving the percentage of the population that is poor within five years. The government estimates that 27.5 percent of Indians were poor in 2005, the latest year for which data is available. (India classifies people as poor if they consume less than a certain number of calories per day.)
“I am sensitive to the great challenge of rising expectations of a young India,” he said. “It reflects a population that is restless, yet engaged and is ready to seize the opportunities that it is presented with. There are new and powerful reasons for us to create, facilitate and sustain those opportunities.”

Overall, government spending will increase 36 percent and the deficit for the 2009-10 fiscal year will reach an estimated 6.8 percent of the country’s gross domestic product, up from an estimated 6.2 percent last year. Rating firms had warned that they might reduce India’s credit rating to junk status if its deficit rises too much, but they did not make any changes Monday.

While India has survived the global economic crisis far better than the United States, Europe and export-dependent emerging markets, its economy has slowed from the 9-plus percent growth it saw in recent years to 6.7 percent in the year that ended in March.

To resume faster growth, economists say the country will need big doses of investment from businesses and the government. The financial crisis has significantly slowed foreign investment, and the government has struggled to improve the country’s shabby infrastructure because of entrenched corruption, bureaucracy and political meddling.

The Planning Commission has said India needs to spend $500 billion by 2012, a target few analysts expect it to meet.

Mr. Mukherjee said he plans to increase infrastructure spending to 9 percent of GDP by 2014. India now spends about 6 percent of its GDP on roads, ports, airports and similar facilities, compared to about 9 percent in China.

The spending hike will be bolstered by an existing government body called the India Infrastructure Finance Co. Ltd. The minister said the body will have “greater flexibility” to free up capital in India’s banks for new projects.


The IIFCL can refinance up to 60 percent of the loans linked to infrastructure projects built through partnerships between government agencies and private investors, he said. Such refinancing would make it easier for banks to lend against new projects. The IIFCL will be able to refinance up to $20.8 billion in loans, he said.

Several executives welcomed the focus on infrastructure and the poor but said the government had to show that it could make good on its promises. “The delivery has to happen with alacrity,” said Bharat Wakhlu, resident director for the Tata Group in New Delhi.

There was more disappointment among multinational companies, foreign investors and overseas universities who were hoping for relaxation in investment limits in banking, retail, education and other sectors.

Foreign retailers who sell just one brand need to find a joint venture partner to sell products in India. Retail chains that sell more than one brand, like Wal-mart, are limited to setting up wholesale stores in India, which can sell to shopkeepers or restaurants but not directly to consumers.

Foreign life insurance companies are restricted to owning 26 percent of Indian life insurance firms.

The budget provided “nothing specific at all” for foreign investors, said Sanjay Nayar, chief executive of Kohlberg, Kravis & Roberts in India and a former head of Citibank’s Indian operation.

Rather than talk about foreign investment, Mr. Mukherjee noted how well big Indian banks had performed in the current economic crisis thanks to their nationalization 40 years ago by Indira Gandhi, the prime minister at the time.

“Her approach continues to be our inspiration,” said Mr. Mukherjee, who was finance minister for three years under Mrs. Gandhi in the 1980’s. (He added that the government would sell minority stakes in non-financial state-owned companies, raising a modest $230 million.)

Suhel Seth, a marketing executive and trustee of the Indian Brand Equity foundation, a government-founded organization that burnishes India’s image abroad, said the speech “tells every foreign institutional investor that India is back in the 1960’s.”

The government has proposed a range of tax incentives like raising exemptions for the elderly and women; eliminating a fringe-benefits tax that companies pay on employee perks; and lowering taxes on goods and services bought by exporters, construction companies and technology firms.

Many analysts had hoped that the government would reduce various subsidies for fuel, food, fertilizers and other products. Mr. Mukherjee said the government would move to reduce and overhaul fertilizer subsidies so that the money would go directly to farmers, rather than fertilizer makers.

“This may help farmers if implemented properly,” said Kishore Tiwari, a farmer and an activist in a region where many farmers have committed suicide in recent years because of financial pressures. “There are a lot of farmer friendly announcements but it is to be seen how they are implemented.

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