Arun Jaitley’s 3rd Budget: Watershed To
Weathervane
Finance minister Arun Jaitley’s third budget, to be tabled
on the ‘leapling’ 29th of February 2016, evokes great expectations.
It is a time of tremendous opportunity, but also an overhang of unfulfilled
promises. What are the discernible trends at this time?
In the context of a rather charged political backdrop, this
budget needs to be a watershed that will be spoken of in future for its shift
towards a raft of substantial second generation reforms.
2016 must be remembered, as we often recall 1991, as the
year when the foundations of a developed India were put in place.
This budget should, as a money bill, that cannot be blocked
or stymied under the Constitution, be made to serve as a vehicle for a plethora
of urgent pending legislation. These could be reworked to its barebones, reduced
to its financial parameters, and be inserted into this document.
Two expensive parliamentary sessions have been wasted so
far, and this one, coming up, is also expected to fail. But the budget will be
passed because it sanctions monies for the running of parliament itself, and
the provisioning of the legislator salaries and perquisites as well.
So Union Budget 2016 should become the first one in our
history that carries legislative load in its pages, alongside changes in
taxation provisions, and allocations of monies for various purposes. The Rajya
Sabha cannot stop, or hold up a designated money bill, for more than 14 days.
The economy does have some sunny spots, though most of the
initiatives taken by this government have yet to show results.
A key block is that the investment cycle in private business
and industry has not yet begun. Demand is still soft, and credit is both
expensive, and very hard to come by.
However, the FDI picture is rosy, and particularly in
defence manufacturing, the Indian Railways, and selected infrastructure
projects, it is expected to go through the roof by general election year 2019.
Growing its GDP at between 7.3 and 7.6 % on the revised
calculation basis at the moment is not bad. But this is mainly on the back of
the government’s own infrastructure spending.
India has had a bonanza of over Rs. 2,00,000 crores, gained
from its reduced oil bill. And more coming up, with prices unlikely to spike
any time soon. This saving is being redeployed
even though there are hefty unpaid subsidy backlogs from UPA times.
The prompt doing away with the subsidy on petrol/aviation fuel
and diesel, has probably been this government’s boldest, and only, major reform
so far.
And though the subsidy on kerosene and LPG continues, there
have been voluntary surrenders for the latter, in response to the prime
minister’s appeal.
Many other subsidies and welfare programmes, particularly
for rural India, initiated by the UPA, which this government has decided to
carry forward and even enhance, have to be funded. This may not be the best thing in
classic economics, but the government has an obligation to help the poor.
Luckily there are some other initiatives that have
contributed to government coffers. The very successful round one of spectrum
auctions garnered a handsome Rs. 1.1 lakh crore.
Coal mining- practically dead and buried under the UPA, has
been revived. The public sector Coal India is functioning well again, but
modernisation of the mining processes is yet to happen. Imports have been drastically cut, and a
saving of some Rs. 30,000 crores is expected in FY 16. Coal auctions have given
the private sector access to the mineral, even though, the government is no
longer giving it away for nothing.
Iron ore mining in Goa has been revived, and this has
restored a source of revenue there in addition to tourism and rampant
construction. But other, much larger mining initiatives in Odisha and elsewhere
are stuck for want of various clearances, and land. When, and if this is
tackled, it could add substantially to growth.
The power generation, transmission and distribution systems
have been much improved and alternate energy sources such as solar power are
being seriously tapped.
The government’s disinvestment targets of Rs.69,500 crores
from last year has been under-achieved, at Rs. 37,000 crores, despite a
volatile stock market.
The collection of direct and indirect taxes is going well
enough, and is expected to end fiscal year ’15 very near target. 66% of it has already been collected by December
2015.
Job creation, though not exactly stellar, did produce
460,000 new jobs by December 2014. These
were in industry and services, according to the government’s own labour bureau
surveys. Another 64,000 new jobs were added by March 2015; so presumably the
end of fiscal 2015 will see a respectable figure too.
But, since 10 lakh new entrants come into the labour market
yearly, the promises of 100 million jobs over the next six years is indeed one
of the most pressing needs.
The outlay for floods and droughts compensation has gone up
sharply from an earlier average of Rs. 8,000-9,000 crores to over Rs. 24,000
crores, even as only 30% of crop destruction was compensated.
And these natural disasters, in the absence of adequate
engineered solutions, have set the entire rural sector back, both in per capita
income and overall contribution to growth terms.
While torrents of
gratuitous advice, and wish-lists from business, industry, chambers of
commerce, bankers, politicians, and columnists, has come in, the broad future
direction seems to have been already set.
The finance minister will emphasise and dwell on the
upliftment of rural India, which is in distress.
PSU banks, under-capitalised, burdened with NPAs, are being
cleaned up, presumably with an intent to sell up to 49% of their equity, to foreign
investors and privates. This will, if accomplished, see them adopt
best-practices, improve their performance and profitability. In turn, the banks
which need to grow, some estimates call for an $ 35 billion infusion, will
begin to lend robustly once again.
The indications are that Modi is set on continuing with a
largely mixed economy, rather than a Thatcherite privatisation drive. The endeavour
will be to strengthen both the private and the public sectors, at the same
time. The government does want to dilute
its holding in many enterprises, but only in order to help it grow under more
efficient management.
This centrist stance is inevitable for the moment,
particularly since infrastructure development in roads and ports etc. and the
upgrading of the railways, has had to be kick-started with government
investment. This, even though private and foreign funding is welcome and
expected to join in shortly.
The key change however, is that no area is being reserved
exclusively for the government any more. There are no ‘commanding heights’ of
the economy to be exclusively state-owned, whether it is defence, nuclear
power, roads, ports, electricity, solar energy, services, e-commerce, digital
India, smart cities, and so on.
This is clear from a large number of announcements - but
most recently, the US howitzers, long awaited, that will shortly commence
manufacturing, partly in India, in collaboration with the Mahindra Group.
Almost all manufacturing sectors are now open to foreign and
private sector investment. Even Health and Education is being opened up, though
the necessary emphasis is still missing.
In rural India there
must be radical change to make it profitable. So much is on the anvil,
including modern storage and grain
handling, the cold chain, modern marketing/ auctioning/price discovery
infrastructure, food processing,
alternate energy sources, rural
connectivity/infrastructure, both physical and IT, and so on. All of it
seeks private/foreign investment/know-how.
This government is not embarrassed to admit that it cannot
generate the trillions of dollars, and access the technology needed for all
this by itself. But it doesn’t want progress to be greatly slowed or stopped as
a consequence.
But bringing manufacturing to India for items that were
bought out from abroad, will have a very welcome effect on GDP growth going
forward. Results should begin to show from this year.
The skilling development to come will be a natural
corollary, and export potential of truly high-value and high-technology items
will result and extend the evident early success of ISRO in the business of
launching foreign satellites, for example.
However, the bold structural reforms must begin now. The
important pending legislation- GST, Labour, Land, Bankruptcy laws etc. must
find their reworked way into money bills.
Some states have already passed their own new land
acquisition laws, but more of them need to take the plunge.
This union budget will also follow on from a far more
dynamic Railway Budget that has been the case in recent years. The determination
is to both vastly modernise the railways, and return it to substantial
profitability. Work on freight corridors is proceeding apace, and should
provide a revenue boost when completed.
The Economic Survey
to follow the Railway Budget is expected to be cautiously optimistic. At this
juncture, India’s is the fastest growing economy in the world, albeit on a
small $2 trillion base.
The consumption led boost expected from the implementation of
the OROP and 7th Pay Commission awards, will also play its part in
increasing liquidity.
The 3% or less of our population that pay income taxes may
get some relief in terms of a raised exemption threshold. But tax deducted at source,(TDS), and other
onerous taxes such as service tax, should really be thrown over. Instead, the
much talked about minimal expenditure tax payable by all who conduct a bank
transaction above a certain specified limit, should be introduced forthwith.
In any case, the government collects most of its tax
indirectly, but all efforts to widen the income tax base have not really done
much. So, this need for a more or less universal direct expenditure tax is
urgent.
Whatever be the hesitations, this budget must seize the day.
It needs to boldly point towards the policies of an NDA ruled future. It cannot
afford to be a rehash, a cut-and-paste job, of timid and incremental UPA ideas,
for which this government has been much mocked already.
It must excite enthusiasm and renewed support from all
sections including overseas observers. It must set policy and structural
direction, for the next three years, and beyond.
Let us proceed with the belief that the NDA will secure a
second term. Looking at the voters, this is a strong likelihood, based on
stubborn and substantial support for the prime minister Narendra Modi, in
particular. The BJP/NDA vote share too has not slipped, despite two years in
the saddle, and the grievous loss of Delhi and Bihar in assembly polls.
The opposition, meanwhile, is increasingly painting itself
into a corner. It blocks legislation in parliament, makes offensive remarks
against the prime minister, and wild, half-baked allegations against other
important ministers and chief ministers.
It speaks against Modi and his government sitting in
Pakistan! It threatens to unleash anarchy on the streets; as if this country
and its welfare is none of its concern. This, in addition to supporting
anti-national, secessionist and subversive forces, along with the AAP, and the
Left, in particular, often to the discomfiture of other regional parties.
All this is not going down well with the masses, the armed
forces, police, CRPF, BSF, being insulted by opposition disdain for their
contributions, a good part of silent majority, the outraged legal fraternity.
Even within itself, this lot are fractious, with uneasy and
multiple parties trying to rub together in their craven quest for power.
There are discernible early trends towards a disgust with
people that don’t even baulk at the prospect of consorting with the Khalistanis,
Maoists, Kashmiri separatists, ISIS, various Pakistani terrorist outfits such
as LeT, JeM, the Taliban, and others.
The mass of voters, now more or less evenly split between
urban and rural India, are not comfortable with secessionists and terrorist
helpers. Recent results from assembly election by-polls in different parts of
the country had the BJP winning 7 out of the 12 seats contested.
A great opportunity to consolidate its position with a bold
and far reaching budget, handed to it by opposition extremism, should not
therefore be squandered by the NDA at this point.
For: The Sunday Pioneer, AGENDA (Cover Story)
( 2,016 words)
February 19th, 2016
Gautam Mukherjee
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