Yashwant Sinha's unwitting success

new delhi: most people think that finance minister yashwant sinha presented his budget in sin gularly unfavourable economic and political circumstances. i disagree. i think the budget has been presented in exceptionally favourable circumtances, at the start of a new economic boom. industry, exports and the stock market are all about to soar. within nine months, the boom will make sinha look a financial genius.such is the fleeting stuff of which fame and reputation is made.
pessimists point out that the world has been mired in recession, and india with it. industrial growth in april-december averaged a miserable 2.3 per cent, reaching a nadir of 1.9 per cent in december. export growth was negative in q1 of the fiscal year, and a slight recovery took growth to no more than 0.6 per cent in april-december. the sensex halved from 5,000 last march to 2,500 in september, before recovering partially. corporate profits and quality jobs slumped.
the political climate was murky too. the osama bin laden affair made south asia look a dangerous place, so foreign tourists, businessmen and even cricketers were reluctant to come here. army mobilisation ate up development funds. the euphoria over sinha''s budget last february dissolved as it gradually became clear that he lacked political backing in the cabinet, rajya sabha and state governments to push ahead with labour reforms, urban land reforms, or food procurement reforms. stiff resistance within and outside his party greatly delayed privatisation. on top of which the bjp has just been defeated in state elections in uttar pradesh, uttranchal, punjab and manipur.
yet, paradoxically, what seem to be unfavourable conditions are actually very favourable for this year''s budget. to understand this, recall sinha''s budget last year. it was presented after a year of good industrial, export and stock market growth, linked to a soaring world economy. sinha looked forward to joining the miracle economies of south-east asia within three years, promising sweeping second-generation reforms, cut taxes and pump-primed the economy for all he was worth. people cheered wildly.
few realised that the world economy would soon collapse. nasdaq, the tech-heavy stock market in the us soon halved. the us plunged into recession, and so did japan. bin laden struck at the world trade centre and added to the gloom and doom. the indian software boom went from boom to bust.
this year, the reverse is happening. the recession is giving way to a global boom. this is not just wishful thinking. the process has already be gun.
exports in january soared 18 per cent, showing that the world economy is turning and india is getting its due share of the benefits. the output of six key infrastructure industries rose 5.9 per cent in january, after having stagnated in earlier months. cement output soared 17 per cent and steel output 8 per cent in january, evidence of a construction boom. rail traffic grew by 6 per cent on average after september. non-oil imports, which indicate industrial and consumer demand, fell 3 per cent in q1 of the financial year, but then jumped 17 per cent and 9 per cent respectively, in the next two quarters. even excise duty collections, which declined 5.6 per cent in the first two quarters, rose 6.9 per cent in q3. the sensex has recovered from a low of 2500 in september to 3700.
why? because india is now clo sely integrated with the global economy, which is turning around. the latest data from the us shows that gdp rose 1.3 per cent in the october-december quarter, signalling the end of the recession. it was the shortest and shallowest in us history, with output falling for only one full quarter, and unemployment never exceeding 5.8 per cent. no wonder the us stock market has taken off. the indian one will surely follow.
so, the economic outlook for sinha is rather good. but is not the political climate difficult for the bjp after losing four state elections? not really. india is now in an era of coalition politics, and what matters in new delhi is not a party''s ability to win state elections, but its attractiveness as a coalition partner to other parties. precisely because the con gress remains strong in the states--it has 16 cms--it is the biggest local rival of regional parties, who, therefore, are reluctant to join hands with it in new delhi. the only exceptions are states like bihar and tamil nadu, where congress has become so weak that it no longer threatens regional parties.
by contrast, the very weakness of the bjp in the states makes it more acceptable to regional parties as a coalition partner in new delhi. the akali dal, telegu desam party, bharatiya lok dal, samta party, asom gana parishad, and shiv sena, all view the congress as an arch rival in state politics, and so prefer to join hands with the bjp at the centre. hence do not think that the bjp''s poor performance in state elections will hamstring it in new delhi. sinha has shrugged aside the election result in his budget, and rightly so.
last year, sinha failed for reasons beyond his control. in the coming year, he will succeed for reasons be yond his control.