Year 2008 was rough. It was a year where past excesses and lack of foresight led to perhaps the greatest recession in history; a year of reorganisation of world powers; and a year that ended in terrorist attacks on India that called into question the effectiveness and adequacy of our government, media, police and intelligence forces. The question stands–did we do anything right?

A fiscal cushion

The lack of foresight across the board–among economics experts down to the common man—is perhaps one of the most startling aspects of the global financial crisis. But taking a closer look at the Indian economy and the fiscal policies of the past year, it seems not everything was done in error or without prescience.

Ajit Ranade, Chief Economist with the Aditya Birla group, says the expansionary budget unveiled by then Finance Minister P. Chidambaram in February was a measure that helped stave off some of the crisis.

When Chidambaram announced the budget, it was called ‘populist’ and the BJP said it was a ‘recipe for long term economic disaster’. The budget increased expenditure targets on rural development and education, cancelled loans made to farmers, and offered tax relief to low-income groups.

But Ranade says the criticisms were off-target. “The expansionary fiscal spending had impact on rural purchasing power. No one anticipated what was coming, but in hindsight this looks like it helped us with the slowdown,” he says.

Chidambaram’s budget increased banks’ target loan disbursals to the agricultural sector by Rs. 2.8 trillion ($70.52 billion), and Rs. 160 billion were allocated for employment in rural areas. The health sector allowance increased by 15 percent to Rs. 165.34 billion.

The budget also raised taxes on short-term investments and brought the mutual fund industry under the tax service net. At the time, this hurt market sentiment.

However, looking back, the budget provided a fiscal cushion, says Ranade. “While there was a slowdown in global markets, domestic markets kept up some momentum. We have seen our second quarter GDP show 7.6 percent growth, which was higher than expected. The budget might have mitigated some of the effects and allowed for this growth.”

The realty bubble predicted

While much of the world seems caught by surprise by the popping of the real estate bubble, Ranade says the monetary policy and stance of the RBI proved to be in the right direction in terms of the real estate market.

source: IBN live

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