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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

The End of India’s Growth Miracle?



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Rajeev Mantri and Harsh Gupta, both of whom are entrepreneurs as well as policy analysts, write a devastating takedown of India’s left-of-center UPA government, which threatens to smother India’s growth miracle through sheer incompetence:

 

Till recently, the UPA had been politically lucky. It inherited the growth benefits of its predecessor NDA government’s reforms and a global liquidity boom, and used the consequent booming tax revenues to finance an unprecedented and uncompromising focus on politically-motivated social expenditure to buy votes. Then, with the global financial recession, it retrospectively justified part of the growing fiscal deficit as an astute fiscal stimulus. To top it off, the global downturn happened to play out in such a manner that inflation hit zero right around the last general elections were held, while hovering near double digits both before and after elections.

The postponement of tough economic policy decisions had to eventually lead to inflation, corruption, slower economic growth and consequently fewer jobs. Today, the government is insisting on passing the Food Security Bill that would further expand spending, with no clarity on how it would be paid for in the longer run. But with national elections over two years away, the UPA finds itself cornered without any solutions except raising taxes, reducing spending and initiating tough reforms.

Bad economic policy in the U.S. is a serious problem because the U.S. is one of the world’s main growth engines, particularly as the surplus countries refuse to reform their ways. Unemployment exacts a cruel toll for American families that can’t be discounted, yet our relative affluence does provide something of a cushion. Bad economic policy in India means that millions of children who would otherwise live will die. 



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