India reveals plans to float rupee

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The Independent Online
INDIA, despite its political and religious upheavals over the past few months, is accelerating the pace of its economic reforms, according to the Congress government budget released over the weekend.

After more than four decades of a sheltered socialist economy, protected by towering trade barriers and an abiding distrust in multinational companies, India is opening its door wider to the gusts of the free-market, global economy. The Finance Minister, Manmohan Singh, proposes for the first time to let the Indian currency, the rupee, float freely on the exchange markets. This will be a boon to both Indian exporters and foreign firms wanting to tap India's colossal market. As another spur for Indian exporters, the government wants to slash customs and excise taxes.

The parliament will vote on the budget in three weeks, and Mr Singh challenged the left-wing parties and the right-wing Hindu Bharatiya Janata Party (BJP) - the main opposition group and instigator of the recent widespread Hindu protests against the government - to 'find any loophole' in the 1993-94 budget.

But the BJP's chief, Lal Krishna Advani, dismissed the budget for failing to benefit the common man or India's burgeoning middle- class. One Communist leader, Somnath Chatterjee, accused Mr Singh of pandering to the International Monetary Fund and the World Bank. 'It is a foreign exporters' budget. The word 'poor' has not been used once,' he said.

The Prime Minister, Narasimha Rao, needs votes from the left- wing parties to pass the budget. As a trade-off to the Communists, Mr Rao has reportedly postponed the closure of many useless, state- owned factories.

Despite jibes from opposition parties that the budget had forgotten India's rural poor, it does call for a 62 per cent increase, to pounds 113m, for rural development schemes and farming credits.

Many industralists and economists welcomed the reforms. The Times of India, often critical of the government, said, 'the Finance Minister has erased doubts about the future of reforms'. But shares on the Bombay stock exchange fell sharply on Saturday over the budget news because expected cuts in corporate taxes failed to materialise and because investors saw lower tariffs threatening an inefficient industrial sector.

The government is counting on an extra 15 per cent in export earnings as a result of making the rupee fully convertible to other currencies. This is expected to cut down India's pounds 5bn trade deficit. Although the government raised prices for coal, some medicines, wheat and sugar before unveiling the budget, Mr Singh claims that with these new measures, inflation will fall from 6.9 per cent in 1992 to 5 per cent.

Afraid of risking a deeper fall into recession by raising taxes, Mr Singh has scarely increased taxes at all - the usual route that governments take to bankroll their spending. The government plans on running a pounds 980m deficit for the coming year, which India must cover by borrowing abroad.

(Photograph omitted)

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