Just budget won't do, Jaitley must have a Plan B
This budget represents Arun Jaitley's pragmatic attempt to administer a life-saving medicine for the economy while ensuring that the pill is sufficiently sugar-coated, writes Rajiv Kumar.ht view Updated: Jul 11, 2014 22:20 IST
As I see it, the thrust or the underlying theme of Union finance minister Arun Jaitley’s maiden budget is to re-ignite investment sentiments and accelerate growth, but to do so without having the luxury either of splurging public expenditure to stimulate growth or to divert significant sums from consumption (read subsidies) to public investment.
This budget, therefore, represents his pragmatic attempt to administer a life-saving medicine for the economy while ensuring that the pill is sufficiently sugar-coated.
It can be argued that the Union finance minister had the parliamentary majority to administer the bitter medicine without the sugar-coating and drastically reduce subsidies as fiscal purists would want him to do.
But politics as we well know is the art of the possible. Surely, the minister did not want Prime Minister Narendra Modi and his government to be attacked by the army of Left-wingers and bleeding-heart socialists, impatiently waiting for him to make such an ‘anti-people’ move.
Along with the motley opposition, they would have discredited him and this government as supporters of market fundamentalism; snatchers of food from the poor; and being the running dogs of Indian crony capitalists and US imperialists.
They are trying to do so even now but without conviction and bereft of public support.
Had Jaitley announced a big bang budget, the people reeling under seven years of high food inflation and lack of job opportunities for the last three years would have spilled out on the streets with sufficient provocation coming from expected quarters.
We must all realise that 2014 is not 1991. Even the media, which today is far more influential, would have gone to town saying that it is not acche din but bahut bure din for the aam aadmi. The government would have become a lame duck administration in 45 days and had its back to the wall.
The more I think about it, I feel that Jaitley should be complimented for not having fallen in this trap and choosing wisely to go for a soft launch for his party’s growth and reform agenda.
For me the penny dropped, when in one of his post-budget interviews, the minister said that he took care to not include the enhanced target of Rs 63,000 crore for disinvestment as this may have brought the opposition in to the well of the House and prevented him from presenting the budget.
The government is being extra sensitive to the public needs and perception and yet trying to lead forward towards reforms and not succumb to populism as the UPA did. This successful balancing, I submit, reflects the political genius of Modi.
But this theme and the successful balancing, were most probably missed by all because of the rather fragmented and staccato format and presentation of his speech. The one feedback that Jaitley must consider very seriously is to fire his speech writer. This speech was too bureaucratised and also managed to effectively disguise the actual thrust of the budget.
While sticking with this pragmatic approach, the minister has managed to convey the broad directions for reforms that his government will pursue. Public expenditure, not subsidies alone, will be rationalised after the Expenditure Management Commission has made relevant recommendations.
Public sector banks will divest their equity to the general public and become more autonomous but without being privatised, à la the Chinese model.
Infrastructure deficit will be addressed not only through public–private partnerships (PPPs), which is identified for airports but also by direct public outlays like Rs 37,800 crore for highways, Rs 7,000 crore for 100 smart cities, Rs 11, 000 crore in selected ports etc.
Foreign direct investment (FDI) will be attracted to new and critical sectors like defence production, insurance and urban real estate development. The investment allowance has been extended and the floor lowered to Rs 25 crore. The power sector will be provided with sufficient fuel and Coal India Limited (CIL) suitably re-structured. The national gas grid will be doubled and every village will be provided electricity.
The budget is replete with a very large number of reform measures, some of them technical in nature. I dare say that if these time-bound promises are fulfilled, as they should be by a government claiming good governance as its major USP, the Indian economy will be firmly back on the high growth trajectory within the next two to three years and be able to sustain that much-needed high growth into the future.
I wish though that Jaitley, in keeping with his soft launch, had also chosen a softer approach towards fiscal consolidation as well. He has taken up, in my view the false challenge, of achieving a fiscal deficit target of 4.1% in 2014-15.
This is indeed a tall order and at least on first examination the numbers simply don’t add up. The underlying assumptions for GDP growth, tax revenue growth, dividend receipts from the Reserve Bank of India, public sector banks and enterprises, and disinvestment receipts are all a stretch.
This is especially true in view of the substantial downside risks facing the economy. These are in the nature of sub-normal monsoon; food price spike; a possible global oil price hike; and longer than expected lags in investors’ response that will dampen the growth impetus.
He would do well to ask his officials to prepare a fall back plan that will ensure minimal disruption in his public expenditure plans, essential to kick-start the economy.
(Rajiv Kumar is senior fellow at Centre for Policy Research, New Delhi. The views expressed by the author are personal.)