The Union Budget, presented by finance minister Arun Jaitley on Monday, has reassuringly concentrated on several key areas to grow the economy while creating employment within an overall context of fiscal discipline. Cases in point are agriculture, infrastructure, banks, ease of doing business, education and skills. The success of such measures will depend on the quality of execution. This action-orientation has been wanting across successive government regimes.
The agriculture sector is critical given the dependence on it by about 50% of the population. Doubling farm income and providing every village with roads and electricity are lofty and laudable objectives. The Budget has laid out plans to increase cash infusions into rural India via MNREGA (as the previous government did), increased spend on irrigation (woefully static for decades), creation of a common agricultural market, provision of crop insurance, and interestingly 100% FDI for companies entering into food processing. All these measures have been discussed and considered for decades in government and industry alike. The real challenge is to action these effectively and credibly. The delineation of Special Farming Zones, akin to SEZs, would ensure such changes can be effected in an integrated manner, piloted and scaled through geographic prioritisation to ensure sustained impact.
The budgetary decision to materially improve the fiscal allocation to infrastructure development, particularly on roads and railways, rightfully recognises three significant constraints: The dismal state of infrastructure; paucity of resources; and absence of confidence in the private sector’s ability to execute in this area. It will also catalyse growth in the economy given the current scarcity of private sector investment. The soundness of an implementation mechanism is critical, especially as PPP mechanisms have yielded limited success to-date; while Jaitley acknowledged this, the roadmap for implementation remains undefined. Implementation of infrastructure projects is thorny, presenting huge scope for ambiguity, reduced quality as well as overruns on cost and time. Yet powerful positive case studies such as the Delhi Metro, and the faster rate of road construction, demonstrate the crucial lesson of selecting and empowering the right leaders. India’s infrastructure deserves purposeful leaders, in possession of unimpeachable integrity, who set a high bar for execution in parallel with building high-performing teams. Drawing on such examples, and distilling implementation lessons, is fundamental in achieving a step change in establishing, leading and executing Infrastructure projects.
`25,000 crore has been allocated to recapitalise public sector banks in compensation for decades of abysmal lending practices. This move is reminiscent of the swiftness with which the United States government moved after the last economic crisis to create a ‘good bank’ and a ‘bad bank’. Europe moved far slower and the US economy recovered much faster. Success of this initiative rests on courage in the adequacy of amount, as well as focus on detail and implementation. As the chairman of the SBI acknowledged, this presents a “once and for all” moment to ensure thoroughness and sufficiency in recapitalising the banks, thus revitalising confidence in credit. However, mere provision of capital will prove inadequate unless it is accompanied by reform of the governance mechanisms of banks and their lending. The proposed Bank Bureau is a useful step in better governance but more should be done including privatisation of banks. The bankruptcy code is certainly an excellent step to reduce future misuse of credit.
It is beyond reasonable doubt that our administrators understand why and how to simplify the number of permissions, and the process to start a business. It’s unclear how an expert commission will address this any better. The real knotty challenge is the trade-off between government control and business invigoration. Identifying and recruiting new leaders of enforcement agencies, bi/tri-sectoral leaders who understand the need, and the methods, to simplify, reduce red tape and avert corruption, and yet be responsive to business is needed. Consistency is critical. The government undercuts its credibility when Vodafone files a retrospective tax demand on the very day that the government states that India will not apply retrospective taxation.
The priorities of higher education and skill development are both welcome in developing the human capital necessary in fuelling growth. A Higher Education Financing Agency (HEFA) is to be instituted with an enabling regulatory architecture to finance 20 world-class educational institutions; a Student Financial Aid authority is to be established to ensure deserving students without funds have access to education. While the intention of creating such institutions is worthwhile, their governance is critical. The government should be cautious of overstretching itself and potentially under-delivering. Rather the government could consider an independent board for the HEFA comprising eminent individuals. Similarly the actual business of lending to deserving students may be expedited if left to financing experts, to avoid the detrimental, regressive results of government intervention in student financing in the US.
The government is to be commended for achieving the current year’s fiscal deficit target. Equally noteworthy is the resolve to adhere to getting it down to the 3% target in three (rather than two) years thus gaining valuable fiscal bandwidth, to redirect resources into sorely-need infrastructure. Among the multiple benefits accruing from such fiscal prudence is protection of the rupee, and possibly lower interest rates.
A common thread running through these initiatives is the need for swift, purposeful, and detailed action. None of these initiatives are new, and yet they have not been implemented. Perhaps herein lies the opportunity for this government, and this Budget, to follow through on ideation with a focus on action that is effective, setting a new standard for delivery and implementation.
Sound businesses move rapidly from decision-making on a set of strategic initiatives to defining detailed actions in each relevant unit or function and then to implementation with accompanying governance, and financial oversight. Similarly, this government, focused as it is on delivery and implementation, will stimulate further confidence in the Budget by articulating a detailed set of actions for each initiative. For example, co-ordinated by the Niti Aayog, each identified action could have a timeline and an owner. The government could publish progress against each action every three months holding itself accountable, and next year’s Budget would present an overall progress review. This would accelerate the progress that India undoubtedly needs, and deserves.
MS ‘Vindi’ Banga is former president Global Unilever
The views expressed are personal