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Q: Are India's deficits also a problem? India's government is running a steep budget deficit, spending more than it collects in taxes. The country also has a big current account deficit because its imports, swelled by oil and gold, exceed exports. The deficits aren't by definition a problem as long as investors are willing to finance them and believe the debts will ultimately be repaid. If doubt creeps in, India's creditors would demand higher rates of interest to continue financing the country. In extreme circumstances that could lead to a government default or balance of payments crisis. Right now, the twin deficits are a symptom of India's economic weaknesses and show its vulnerability. India's government wants to reduce its budget deficit but has to proceed cautiously, because a too sharp withdrawal of deficit spending would further slow economic growth. Q: It sounds like India's problems are too hard to solve. They're difficult, but there are some steps India's government can take. It can reform regulations to make doing business easier. The World Bank's ease-of-business survey ranks India 132 of 185 countries and lists India as one of the world's five worst countries both in enforcing contracts and dealing with construction permits. Businesses say the government must also follow through on pro-growth policies such as opening retail and aviation to more foreign investment and forming a special commission to solve delays blocking major infrastructure projects. It would also help to streamline the country's notoriously tangled bureaucracy.
[Associated
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