Tight fiscal policy no Indian cure

Columnist Jephraim Gundzik gives India''s new government some unconventional advice.

The stunning defeat of Prime Minister Vajpayee's National Democratic Alliance NDA government in India's recent general elections has opened the door to significant changes in the country's economic policy. Multilateral lenders, foreign analysts and investors universally believe that fiscal consolidation should be the centrepiece of economic policy changes implemented by India's new government headed by Prime Minister Manmohan Singh.

The call for fiscal consolidation is supported by the mistaken conviction that reduction of the fiscal deficit will accelerate long-term economic growth in India. As proven in Latin America over the past 15 years, fiscal consolidation in India will lead to slower economic growth and political and social instability.

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