It looks like 2009 is going to be a rough year for the Indian economy, in growth terms at least. The World Bank has forecast a growth rate of 5.1% for this fiscal, compared with 6.7% growth in 2008-09. Recovery to the 8% level is expected only sometime in 2010.
These numbers need to be viewed in the context of the functioning of global markets, where green shoots are turning into yellow ones. Unless credit recovery and employment growth begin once again in developed country markets, growth in India is not likely to pick up.
Also Read No more fiscal fudging, please
In such a situation, the government needs to proceed with care. While fiscal expansion as a means of creating demand may seem attractive in the short run and may work, too, it is unlikely to prove to be sustainable. Unless export markets recover, higher growth will remain a chimera.
As a result, the danger now is that fiscal expansion may not only fail to deliver the goods, but may also burden India in the medium term.