Athought occurred to me last Saturday as I heard Arun Jaitley’s budget speech and it’s crystallised into an intriguing interpretation in the week that has since lapsed. Some of the more enticing aspects of the budget were like a post-dated cheque: a promise to deliver on a future and, perhaps, even unspecified date.
Now, there’s nothing wrong with post-dated cheques. They are, after all, legal tender. But they’re not the same as ready cash. And, more importantly, you accept them on trust. Your presumption is they won’t bounce when presented to the bank.
So what are these post-dated cheques? By my assessment they are the decision to reduce corporate tax, legislate for ease of business and reduce subsidies. But Business Standard, which used the same terminology, also includes a host of promised new laws.
Let me, however, stick to my three. The reduction in corporate tax won’t start till next year and it could take four more to complete. When asked why it wasn’t starting at once, Mr Jaitley said he didn’t want to spring a surprise on industry.
However, this is the sort of surprise industry would welcome. Alas, no one put that to him. When I got a chance to question Arvind Subramanian, the chief economic advisor, he candidly added a second reason: the government cannot afford it this year. That’s undoubtedly the truth. So, for those who’ve accepted this cheque, let’s hope the exchequer will honour it next year.
That’s also true for the law to improve ease of business. The government will appoint an expert committee to draft legislation to replace multiple permissions with a regulatory mechanism. It could easily take a year but if it faces opposition obstructionism it might drag on far longer. In this case we don’t really know when the cheque will be honoured.
However, this cheque was also late in arriving. The Modi government came to power knowing ease of business is a huge problem. Its manifesto promised to “take all steps, like removing red-tapism, involved in approvals to make it easy to do business”. The cheque should have been issued last year. It’s, therefore, nine months delayed!
Now, when you come to the promise to reduce subsidies you could argue the cheque has already bounced. This is because the promise was made in Mr Jaitley’s first budget. As he put it at the time: “I propose to overhaul the subsidy regime.” Nine months later, the oil subsidy has shrunk but only because the oil price has collapsed. Food and fertiliser subsidies have risen by almost `10,000 crore.
Today the government no longer talks of reducing subsidies. Instead, the aim is better targeting and, therefore, minimising or eliminating leakages. This will also lead to lower costs but we don’t know when and it’s unlikely to be in the coming financial year.
Thus when it comes to subsidies, last year’s cheque has bounced whilst the new one issued by this budget could take a fair while to honour.
Finally, Arvind Subramanian tells me this is an unfair way of characterising budget reforms. It ignores the reality of politics as well as the undeniable economic constraints. No doubt. But that was known when the cheques were issued. It can hardly be offered as an excuse when it’s time to honour them.
In the end, I wish Mr Jaitley luck. These cheques deserve to be honoured and the government is the only bank that can, even if it takes its time.
(The views expressed by the author are personal)