India’s Fiscal Follies

NEW DEHLI -- India’s new budget for 2008-2009 says less about the country’s current financial health than it does about the irresistible tendency of Indian governments to use the national budget as a pre-election cudgel. Every year, India struggles to reconcile the irreconcilable: stimulate economic growth and investment, alleviate endemic poverty, and feed a ravenous military appetite. The government must be seen to care about “aam aadmi,” the common man (who votes), while satisfying the needs of businessmen (who keep the economy humming). 

Indeed, the new budget is a pre-election bonanza for key constituencies: tax cuts for the middle class and perks for the country’s big corporations. There’s a little something for everyone, including a stunning $15 billion in loan waivers for small farmers. 

For all the attention that India’s retail revolution, information technology prowess, and booming manufacturing sectors have garnered in recent years, agriculture, on which 70% of the population still directly depends, is in crisis. Growth in India’s agricultural sector declined from a lackluster 3.8% to an even more anemic 2.6% last year.

Water tables are dropping where farmers are lucky enough to have wells, and rainfall has become increasingly unpredictable. Subsistence farming of traditional food grains, fruits, and vegetables is giving way to cash crops and monocultures dependent on high-priced inputs that small farmers cannot afford and water that they can’t provide. Farmers borrow money from usurious private lenders. Unable to repay their loans, they kill themselves.