The Budget is rightly steadily evolving into something more than merely a statement of past and future accounts. This budget is not revolutionary, neither is it path breaking. But it reflects what path the government is going to take in ensuing years. There are three pillars of UPA2.
Staggered reforms aimed at inclusive growth, greater inclusiveness in government expenditures, and not letting fiscal conservatism getting in its way. The Finance Minister is just the right person for this job, he is not an economic hardliner, believes in doing what is practical, and is not in too much of a hurry.
Whether a budget is good or bad needs to be seen in light of what the government seeks to achieve, and whether its actions are in line with what it believes are its primary and secondary objectives. Given that inclusiveness and growth are primary objectives, and fiscal conservatism is secondary, this budget is very much on track.
The budget will aid short-term growth, and lays out the right set of directions for long-term progress as well. Various welfare schemes, old and new, will steadily increase in scale, scope and spread. Some effort is being made at tightening of leakages, but there is no hurry.
It will, at best, take another two years before the National ID scheme will become somewhat functional; meanwhile minorities, rural India, the urban poor, women, all can expect an increase in some benefits over the next few years.
But the most interesting part of the budget is not in its allocation, but the passages that lay out future direction of changes in the government. This government does not believe in administrative reforms, so forget any successes in e-governance. This government believes in keeping 51 per cent equity, so forget privatisation. This government does not believe in the deficit targets, so forget significantly lower interest rates for some time.
At the same time, the government realises that at some time it will need to pass on fuel price changes to consumers, it is worried about fertiliser subsidies, and it knows that the PDS is not working and needs to be replaced by a comprehensive food security scheme.
None of this will happen now, but both the Economic Survey and the Finance Minister’s speech have spelt out quite unambiguously, that at some point, they will go after subsidies. The next two budgets will make for interesting watch.
So all in all a budget that will push up the stock markets eventually, increase investments, both domestic and foreign, increase the role of the government in the economy via large investments in the infrastructure space, and also improve the vote share of the Congress/UPA in coming years.
At the same time, the budget categorically lays out a timeline for simplification of taxation, with significant action happening from next year itself with the introduction of Saral2. The generalised sales tax will also be implemented in the next few years (though expect some delays in its implementation), further smoothening the whole taxation process.
Wisely, given opposition from its partners and also internally from within the government, even though some minor disinvestments may occur, the firms that make up the public sector will remain within government control. The finance minister has also promised to put in further investments in some.
So everything from Air India to NTPC to LIC will continue to be in government control. The government will continue to put in significant funds as and when required. The point is simple; this FM does not want to pick up ‘unnecessary’ fights.
So then what is “left”. The deficit. The finance minister is aiming for a 6.8 per cent deficit. No one really knows what the right figure should be. But he is aware, if we spend more than we have, then we could be in trouble.
We have all felt high inflationary pressures in the last few months. And with increased consumer demand that comes with high growth and tax breaks given in this budget, and greater incomes of government servants at the central level (to be followed very soon at the state level), reduced interest rates, inflationary pressures will rise once again.
So Mr Mukherjee will have to fight inflation a few months from now — he has a window in a sense that this will all take a few months to play out. But that window will be shorter, the more successful this budget is. I will give it another six months for inflation to rear its head once again.