India: Maybe Not So Sustainable

FN: My last post on the subject of India was Sustainable? Or False Hope?. Yesterday the market voted False Hope after the government budget was released by dropping almost 6%. The budget deficit widened to 6.8% of GDP, from 6%, forcing the government to borrow record amounts.

Inquiring minds would like to know how this will all work. If every damn country in the world is running massive budget deficits, where is all the money going to come from and what is going to happen to interest rates?

Mukherjee Seeks Investors' Support for Indian Budget (Update1): " India’s Finance Minister Pranab Mukherjee will seek to convince investors that yesterday’s budget will help turn around the economy after stocks plunged the most in six months.

The finance minister is due to meet industry groups in New Delhi today after the stock index dropped 5.8 percent yesterday and the rupee suffered its worst fall in almost six weeks. Markets tumbled as Mukherjee unveiled the widest budget deficit in 16 years and failed to lay out firm plans to sell state-run assets and ease foreign investment rules.

Mukherjee, who presented his first budget in 1982 when India was a closed economy allied to the Soviet Union, yesterday pledged to spend more on food subsidies and rural jobs to help aid the poor. The 73-year-old politician now needs to convince investors that corporate India will also benefit from the rural growth, tax relief and increased outlays on roads and power.

The budget “will lead to faster economic growth, but it wasn’t packaged and sold well,” said Vikram Kotak, who helps manage the equivalent of $2.4 billion in Indian stocks and bonds at Birla Sun Life Insurance Co. in Mumbai. “His intentions in the budget were good. He now needs to convey them.”