India Hits Reverse

It's been only a few days since New Delhi announced a spending program to boost economic growth and the leftist parties and business lobbies are already clamoring for more handouts. If India keeps driving down this road, the country soon will re-discover the "Hindu" rate of 3%-4% growth it suffered under Nehru-style socialism.

Front and center is a plan announced this week to spend 200 billion rupees ($4 billion) of taxpayer money. Montek Singh Ahluwalia, head of the Planning Commission, didn't give specifics on where the bulk of the money will go or when it will be dispersed. But even if New Delhi could find good projects to invest in quickly, much of the impact will be muted by corruption and graft. Never mind: The Confederation of Indian Industries said it hoped "to see more measures in the near future."

The government's giveaway doesn't come for free. It must be paid for either through increased borrowing or higher taxes, neither of which India can afford. The government projects a 2.5% fiscal deficit for this fiscal year, which Mr. Ahluwalia said this week "will be higher." That's for sure. New Delhi has already promised to hike civil servant wages and write off $15 billion of small farmers' debts. Crisil, a ratings agency, forecasts the fiscal deficit will hit 4.7% by March.

The only good news in the package is a temporary cut in the value-added tax on nonpetroleum products, to 10% from 14%. That may help boost consumption marginally for the four months the 10% rate is in place, but it is far from the kind of liberalization that Mr. Singh unleashed when he was last in a position of political influence during an economic crisis in 1991. If his government is serious about spurring growth, it would cut taxes across the board -- permanently.

Unfortunately, the "stimulus" package is only the latest Keynesian spending spree that Mr. Singh's government has unleashed during its four years in office. The Rural Employment Guarantee scheme of 2006 guaranteed farmers jobs for 100 days, to the tune of $3.2 billion. Mr. Ahluwalia, the Planning Commission head, said Sunday that bigger budget deficits will be "desirable." Presumably he learned his economics during his years at the International Monetary Fund, where spending countries into fiscal ruin is considered best practice.

India doesn't need more spending; it needs to change the basic incentives to work, save and invest. That's been hard for Mr. Singh to accomplish, as he has had to compromise with leftist coalition partners for much of his time in office. The Communist Party of India reacted predictably to the new measure, calling it "grossly inadequate."

But Mr. Singh ditched those partners in July, and faces a national election next year. What better time to show some leadership?