It is said that finance ministers who behave with imprudence can scarcely pull the rabbit out of the hat in times of need. Given the imprudence of earlier years, Union finance minister Arun Jaitley could, therefore, hardly do so, either. The best he could do is to follow the prescriptions of John Maynard Keynes who said, “The only chance of balancing the budget in the long run is to bring things back to normal.” The budget sets the direction and sends the signal, conscious of the warning of Kautilya that “a king with depleted treasury will eat into the very vitality of both citizens and country people”. So, he has sought to administer what the prime minister calls ‘sanjeevani’ (new life) to revive life and bring things to normal. What are these credible steps?
First, macro-economic stabilisation and adherence to the path of fiscal rectitude by accepting the challenge of reaching the fiscal deficit target of 4.1% in 2014-15 accepted by his predecessor. The dubious arithmetic of suppressed expenditure and revenue credits prematurely taken in the interim budget compounds this challenge. A lot would depend on the extent to which growth picks up, revenues improve and the challenges posed by oil prices and the uncertain monsoon mitigate. The silver lining is the robust disinvestment programme, from which Rs. 63,425 crore has been reckoned on but could be substantially higher, given that the stock market appetite would need prompt action. The announcement of an Expenditure Management Commission (EMC) to submit an interim report by year end will help in subsidy rationalisation and enhance the efficacy of public outlays.
Second, does the budget re-kindle the virtuous savings-investment cycle? Fiscal rectitude helps in not crowding out private investments and tax proposals increase disposable incomes in the hands of the individual, and other saving instruments like the Kisan Vikas Patra. Raising the limits of savings under Section 80C, coupled with the increased deduction limits for housing loan interest, would be helpful. A push to the housing sector, apart from enhanced availability, will create demand for steel, cement and other ancillaries. This helps growth and generates employment.
Third, has it reversed expectations and restored investor confidence? The commitment to a stable and predictable tax regime with a consultative mechanism between stakeholders, operationalising Special Economic Zones, creating e-biz platforms, extending advance rulings and the increased foreign direct investment (FDI) cap in the insurance and defence sectors will create positive vibes. Smart cities and the proposed ‘3P India’ to mainstream public-private partnerships (PPPs) with sophisticated models of contracting and a quicker dispute settlement mechanism will accelerate economic activity and improve the climate for investment and rekindle confidence.
Fourth, does it address the concerns of the agricultural sector and food inflation? A commitment to sustain growth of 4% in agriculture through a technology-driven green revolution, with higher focus on improved productivity through soil health cards, improved irrigation through the Pradhan Mantri Krishi Sinchayee Yojna (PMKSY), modernising the existing agri-business infrastructure, a protein revolution and increasing the warehousing capacity to enhance the shelf-life of agricultural produces will improve both farm output and supply-side responses. Restructuring the Food Corporation of India and reforming the Public Distribution System as well as a price stabilisation fund can mitigate price volatility in agricultural produce.
Fifth, does it address the distress of infrastructure and stranded assets? Encouraging banks to extend long-term loans to the infrastructure sector with flexible structuring to absorb potential adverse contingencies and promoting them to raise long-term funds for infrastructure with minimum preemption through the cash reserve ratio and statutory liquidity ratio will ease credit availability. Coupled with a speedier resolution of disputes, these stalled projects will hopefully take off. The rural roads and national highways infrastructure, railways network expansion, low-cost housing, developing industrial corridors, building smart cities, given the pressure of urbanisation, public transportation, solid waste disposal, sewerage treatment and drinking water in urban areas, new airports, ports, inland navigation and, added to this a more workable PPP model as announced in the budget, can indeed bring a turnaround in the economy, particularly the infrastructure sector.
The power sector will benefit from an extended tax exemption period and the new emphasis on ultra mega solar power will help enhance dependence on renewable energy.
There are other socially significant measures like the integrated Ganga conservation mission, support for Kashmiri migrants for rebuilding their lives and setting up the National Centre for Himalayan Studies.
Could Jaitley have done more? Or done things differently? Did he miss the big picture? Is the budget riddled with too many details which obfuscate the big picture? Could more timelines have been given for the multiple initiatives mentioned in the budget and the fiscal strategy more comprehensively crafted? Has enough been done on retrospective taxation? Has there been a failure in managing the expectations and aligning them with contemporary realities?
These concerns are understandable but we must be mindful that this is a half budget since he is handicapped by the interim budget and nearly half the fiscal year is over. On retrospective taxes, given our legal framework, the right of Parliament cannot be abridged and the best which could be done is the commitment of future abstinence and subsisting disputes being resolved through an alternative mechanism. Given the multiplicity of commitments made and seeking to address multiple stakeholders inevitably resulted in many smaller projects being also mentioned. The big-ticket announcements need preparatory time and Jaitley confessed that this was the beginning of a journey to get to the 7-8% growth target.
Finally, the proof of the pudding is always in the eating. The implementation of a number of commitments in the budget would be carefully watched. A lot is expected from the Midas touch of the prime minister, given his fabled implementational acumen. A management team to oversee the budget commitments would be timely. No doubt managing expectations is always challenging. But equally high achievement always takes place in the framework of high expectations.
NK Singh is a member of the BJP and a former Rajya Sabha MP
The views expressed by the author are personal