By Nirupam Bajpai & Jeffrey D. Sachs

ONCE AGAIN it is Budget time and the Union Go- vernment needs to put together some bold decisions for 2001-02. India’s political system is more than ever in consensus about the basic direction of re- forms. The current Government enjoys a reasonably strong electoral mandate. A decade of opening of the economy has produced new dynamism, most dramatically in the information technology sector, but in others as well. GDP growth rates can be raised and sustained much beyond 6 to 6.5 per cent should certain critical reforms be implemented soon. In fact, India could certainly double per capita income during the current decade - a goal the Prime Mi- nister announced in his Independence Day speech last year. The Government lost the opportunity to announce some key reforms during last year’s bud- get - its first year in office. With several Assembly elections due in the next few months, the 2001/02 Budget may also turn out to be disappointing.

As the fiscal deficit still remains very high, the process of fiscal consolidation needs to be pur- sued much more vigorously in the Budget. In fact, in the Global Competitiveness Report (GCR) 2000, India ranks 52nd on fiscal deficit out of a total of 58 countries. Considering the excessive preemption of the community’s savings by the Government, the potential for crowding out the requirements of the enterprise sector, the pressure on interest rates, and rising interest payments on Government debt, it is essential to reduce the fiscal deficit, mainly by lowering the revenue deficit. Correction of these …

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