Prudence in the Time of Turmoil

The global macroeconomic backdrop to the finance minister's eighth budget is a turmoil caused by protectionist policies of the US and a stock market crash caused by a Chinese startup.

- AJIT RANADE Pune-based economist

The domestic macro situation is not promising either. Even the Economic Survey tabled just a day earlier forecast modest growth of around 6.5 percent for two years, much less than the 8.2 percent achieved last year.

The net foreign direct investment is down to zero. Thanks to the global nervousness, there is flight of capital toward the New York bond market, causing a strong demand for the dollar. This has made the rupee fall; and in trying to defend it, the Reserve Bank has contributed to an acute liquidity crunch in the banking system. To add to all this, the inflation situation is not yet comfortable and unemployment remains high.

The survey pointed out that while corporate profits are at a 15-year high, wages and salaries have been stagnant. Surely this is more because of the labour market situation, and not a moral issue. How then to revive employment, control inflation, attract foreign capital and stabilise the rupee? These were the questions facing the finance minister.