Defending India's Growth

As India worries about instability among its neighbors, defense spending will likely rise in the year ahead. Because approximately 20% of India's expenditures already go to defense, there is a risk that the government's budget deficits may hit unmanageable levels, threatening the hard won growth of the last decade.

Even before America and its allies began their bombing campaign against Afghanistan's terrorist infrastructure, India's expenditures on defense were rising fast. In the fiscal year ending in March 2002 the government budgeted 731.4 billion rupees (US$15.2) for defense, up 12% from the previous fiscal year. Coming atop an already bloated government deficit, India's government now faces hard choices if it is to maintain its reputation for economic reform.

Early in the 1990s, India moved away from the dozy statist system bequeathed by Nehru by adopting market-friendly policies. These reforms put the economy on a higher growth trajectory, with average real GDP growth hitting 6% over the last decade, compared to under 4% average annual growth in previous decades. Inflation remained in single digits throughout the 1990s and, despite mushrooming fiscal deficits, economic growth became more stable.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/VAGGNwQ;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.