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Monday, August 17, 1998

Smile for a change 

 
Finance Minister Yashwant Sinha is promising an economic turnaround this year in the teeth of business expectations to the contrary. Sinha has instruments to nudge forward the economy. The trouble is, doomsaying by big business can be self-fulfilling in a private sector-led economy. Till a few months ago, business gave the impression that all the government needed to do was to increase public expenditure on construction and make import liberalisation less deterrent to domestic manufacturers. Sinha did both in his budget. He provided for a larger plan outlay and put a 4 per cent charge on a wide range of imports. Indeed, his promise that the turnaround will become visible in the last quarter of 1998 is based on the commencement of expenditure on public outlays after the monsoon. The 4 per cent surcharge has gone beyond what was intended. The weakening rupee has increased the measure of protection to domestic import substitutes. Even so, business expectations remain skeptical.

This is odd. Sinha did nottamper with the key feature of Chidambaram's dream budget, which cut income and corporate taxes in support of private-led accumulation and growth. The dream budget did not click. Business opinion held that it would start delivering with a lag in 1998-99. The logic of the lag theory was that in 1993-94 and 1994-95, there had been excessively rapid creation of new capacity. Capacity had run ahead of demand growth. Now there is evidence of a rise in domestic demand for non-durable consumer goods and capital goods. Sinha's promised increase in public investment should accelerate investment demand, buoy up offtake of steel and cement, among others. And the implementation of the pay commission scales in the states this year should give a fillip to consumer demand. Last year, agricultural production was down. This year, agriculture is slated to record a 3-4 per cent growth. This should result in strong rural demand for manufacturers. The entire domestic demand scenario is brightening. But business retains the longface it had pulled before the budget to lobby for concessions. It is, thus, unlikely to pick up the ball Sinha has promised to set rolling.Big business is fouling up expectations, making economic agents risk-averse. Expectations are the driving force of private investment-led growth. Scowling and carping are, thus, counterproductive. It is time business projected a vision, and a strategy to become dynamic in a competitive environment: make the domestic market the base to foray into the international market. Business must introspect on the power of positive thinking.

Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.


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