Most people agree that finance minister Arun Jaitley’s maiden budget last Thursday wasn’t a bad one. The stock market, after some initial jitters, didn’t really react adversely; the salaried middle-class, especially in its “aspirational” segments, welcomed it; and there was no reason for business and industry to not like it.
People believe that under the circumstances — a fisc on the brink and two consecutive years of growth below 5% — that was the best that Jaitley could do, reserving the really good stuff for subsequent years.
Yet, why does the new government’s first budget leave me feeling a bit unsatisfied?
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One reason is that, everyone’s expectations from the new finance minister after Narendra Modi led the NDA to a stunning victory were quite high.
But there’s something else. Voters have given the NDA an extraordinarily strong mandate and this was clearly an opportunity for it, via its wordly-wise finance minister, to do a bit of grand-standing: announce one really big thing or two and, in return, reap the benefits of making it a memorable budget that spread much-needed cheer and good sentiment all round.
For Jaitley himself, it could have been the perfect occasion to kick off his debut as finance minister in style, if not with a big bang, at least with a cluster of a few smaller ones. That didn’t happen on Thursday, leaving everyone not unhappy but a little underwhelmed.
When asked by TV interviewers why his budget wasn’t bolder, Jaitley said that some of the bigger issues (two examples: cutting the subsidy bill; and fixing a timeline for introducing the direct taxes code) couldn’t be decided upon because he got just 45 days after the new government was sworn in. I’d argue that he could have still done some more in his budget. But before that, let’s do a flashback to 2004.
On May 22 of that year, the Congress-led UPA got to form the government at the Centre after being out of power for eight years. On July 8, 47 days after the Manmohan Singh-led cabinet was sworn in, its finance minister P Chidambaram unveiled the UPA’s first full budget.
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The situation was eerily similar to now: the exiting NDA government had left after passing an interim budget; and a new government was formulating a budget after being in the opposition for a long while. But though the economy had nearly tanked in 2002-03 (when growth had recorded an abysmal 4%), things weren’t nearly as bad in 2003-04 (8.1%) — compared to what the NDA government has now inherited.
Chidambaram’s July 2004 budget wasn’t a big bang budget by any stretch but it announced generous tax exemptions for low income earners and, more important, set a time-frame for two of what were to become the UPA’s biggest social and rural sector schemes: the NREGA and Bharat Nirman, both of which the finance minister outlined and set the following year as kick-off time.
The point isn’t about those schemes, which as we know were part of that UPA’s common minimum programme, but about being more specific about what the next year’s or the following year’s budget would plan to do. With 218 seats on its own, the UPA had much less of a mandate than the NDA now has.
What’s more, in its first four years, it partly survived on the outside support of Left parties.
It’s not that Jaitley’s budget doesn’t have the wow factors: foreign investment in defence and insurance are welcome steps. But don’t forget that it was the UPA regime that had wanted to further open the insurance business, a proposal the NDA had then opposed.
As I said, the budget hasn’t made anyone grievously upset. But just assume that Jaitley had also abolished retroactive tax such as the one on Vodafone; and set a target for scaling back extravagant subsidies.
The markets would have gone cock-a-hoop; foreign investors may have started a queue; and, best of all, the new finance minister would have been a rock star.