Fiscal lessons from Pakistan

Fiscal lessons from Pakistan
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First Published: Tue, May 20 2008. 12 17 AM IST

Illustration: Jayachandran / Mint
Illustration: Jayachandran / Mint
Updated: Tue, May 20 2008. 12 17 AM IST
It is not often that the Indian government can learn a few good things from its Pakistani counterpart. But these are unusual times.
A lot of attention has been focused on Pakistan’s snowballing political crisis as Asif Zardari and Nawaz Sharif play the old and short-sighted game of tripping each other. Meanwhile, the troubled country’s growing economic woes get far less importance than deserved. Inflation there is rising, the government deficit has widened and so has the trade gap. There are signs that foreign investors are pulling out money. The Pakistan rupee has slipped as a result.
Illustration: Jayachandran / Mint
India, too, is grappling with these problems. The responses of the two governments are quite different, however.
Pakistan finance minister Ishaq Dar has told the Financial Times that the coalition government has ordered across-the-board “massive cuts” in government spending in response to rising food and fuel subsidies. Pakistan’s budget is under strain because the government has decided not to pass on higher food and fuel costs to consumers. So, subsidies are rising. The government has decided to cut all sorts of spending — including military spending. “We are tightening our belt… It is the only way to survive,” Dar told the newspaper.
It’s hard to judge right now how much of this statement is grandstanding to impress foreign investors and how much is honest intention. We’ll know for sure in the weeks ahead when the Pakistan government announces its annual budget. But Dar has said that these budget cuts were ordered on the very first day the new coalition government took charge in April.
This newspaper has argued earlier in these columns that the Indian government should allow the food subsidy bill to increase in order to protect the poor from the ravages of double-digit food inflation. But the rise in subsidies needs to be balanced by cuts in other forms of government spending if the fiscal deficit is to be kept under control.
There are few signs that the Manmohan Singh government is ready to bite the bullet.
India continues to have a far stronger economy than Pakistan does. But we need to be careful in the face of growing internal and external deficits.
The pat answer is that spending cuts are impractical for a coalition government. But, if the opportunistic coalition in Islamabad is serious about fiscal prudence, there is no reason the opportunistic coalition in New Delhi cannot do the same.
Should the government start cutting spending? Write to us at views@livemint.com
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First Published: Tue, May 20 2008. 12 17 AM IST