Created: 6/6/1998

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tjfcjDirectorate of Intelligence




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The BJP's Economic Vision: Main Street, Not Wall Street

The budget is further evidence thai the BJP means what it says. Just as the nuclear tests aimed to change India's place on the international stage, the budget seeks to shift economic and social priorities in favor of middle-income Indians in small cities, (owns, and the countryside, as promised in the postelection miinifcjto "Agenda forhile monied interests bemoan the lackapita! gains tax cut and permission for companies to buy back their shares, editorials in the local, indigenous-language press have applauded such features as:

Greater access to credit for farmers and small-scale industrialists.

Spending boosts for education, public health, clean waler,trong defense.

Tax increases on rhe rich and the products they consume such as gasoline.

Repeal of the Urban Land Ceiling Ad, which has restricted new housing construction.

Removal of rcf,ulmiu:u> that tilock economic activity and simplification of procedures lo case regulatory burdens^

Finance Minister Sinha's presemaxion speech spent little time on economic performancenormal subject of the budgetin subscqueni press interviews he expressed little concern abotn possible consequences such as inflationeaker rupee. Instead, heocial agenda grounded in the BJP's economic and social vision of India: thriving Indian farmers and artisans, induslry unlettered by regulaiions and protected only when necessary from predatory foreign competitors, and belicr access for allwomen- -to basic amenities such as clean water, public health, housing, and education.

appears that the BJP is willingsk and absorb some economic pain to carry out its social and economic agenda, just as it is willing lo endure sanctions over nuclear weapons!

6 Iwit


India Plays With fjiflatiun Fire J

The first budget of the BIP-led government, presented last Monday, puts favored sectors and social programs ahead of general economic goals and could lead to double-digit inflation this year. Finance Minister Sinha's bud gel callspcrccnt boost in spendingillion, and projectsercent GDI* growth to offset it

GDP grewetceni during the last fiscal year.

Major public investment hikes include

ercent for agncuhure and rural programs toilhon,ercent for energy toillion.ercent for communications and transportation4 billion, andfor social programs ioillion. H

National securityoostpercent nominal increase for Ihe Defense Ministry8 billion and increases of more thanercent for ihe Itepartrncnts of Atomic Iinergy (DAfc) and Space, each of which will now have0 million. If inflation remains near present levels, these nominal increases will translate intoercent real increase, the largest for defense at die beginning of any fiscal year this decade

has usuallyidyear supplementary increase, however, and Ihe raise this year so far is not out of line with past toul annual increases.

DAE's increase res;ores fuodlng io levels of theAfc had been reeling from budeet cut* for most of this decade.

Sinha is gambling lhat increased spending and deregulation will stimulate growth. Critics, more pessimistic because of die economy's recent sluggish performance and poor response to monetary stimulation, say they will only deprive the private sector of capital and fuel inflation.

Sinha is seeking to cut Ihe fiscal deficitercent, bu he emphasized thai ihe government considers growth more important

Inflation early last month5 percent, ihe highest since April last year.JJJ

Most public and business community reaction has been negative or neutral Few businesses appear enthusiastic about Sinha's strategy, according to US diplomats and press reports

iined on Monday, fellpecialtrading session thai nighl and again on TuesdayM

Sinha leviedercent, across-the-board import duty to "level the playing field for domesticut commentators expected more, given theniiforeign rhetoric. Duties were adjusted up or down depending on whether the government judged thai an industry could stand compemum. in keepingampaign pledge Oiat Indian industries will not be protected forever.

Sinha said he seeks to double foreign direct investment in two to duet years by creating an invesunent friendly environment. He promised projects will be approved withinays, raised limits on foreign ownership, and created numerous tax holidays for targeted sectors.

In an uiten'iew, he said an attractive

investment climate will counter the negative effects of sanctions, but critics complained the initiatives to attract foreign investment are skewed toward Indians living abroad at the expense of foreign investors in general.



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