The Big-Bang Budget As Implosion

The Big-Bang Budget As Implosion

This is a big-bang budget alright, but disguised in raiment of modesty and detail, directional rather than detailed in its expenditure proposals, instead of the bombast the Opposition may have expected.

The implosion here is buried deep, quite like our secret nuclear bomb-testing at Pokhran in NDA 1, which certainly changed our security status for all time.

Then, since it was on May 1^st, barely a month into Prime Minister Vajpayee’s term, on Buddha Jayanti, the code for the successful nuclear tests was ‘Buddha is smiling’.

Now, in the age of more advanced internet and instant, interactive reactions, there were a lot of positive feedback from industry, business, trade-bodies, small business, the poor and the man on the street alike. And many smiling emoticons on the social media to guide the editorial writers on the reception given to this first full budget from the Modi Government. The middle-class, of course, was well pleased with the small Income Tax reliefs given to them.

Most naysayers are from the Opposition, or those who support it, more or less doing their duty by complaining about every aspect of the Finance Minister’s presentation. In fact, Arun Jaitley and his team performed a difficult balancing act between promoting growth and serving fiscal prudence, barely 45 days into the life of the new Government.

The minister made a lot of small allocations to a large amount of headings, as if to acknowledge the claims and importance of various aspects of the economy, but clearly also indicating that it is a work in progress. The Economic Survey of the 9^th of July expected the economy to grow to 5.9% from its present 4.5% this fiscal, but on to 8% by 2017. Mr. Jaitley will therefore have much more money to allocate in successive budgets to come.

But for now, the concerns addressed, however symbolically, were many. These include poverty alleviation, high on the list, agriculture,  education, health, defence, one rank one pension, urban and rural infrastructure, metro-rail  services, roads, ports, airports, monuments, statues, memorials, ghats, electricity, water, tourism, Ganga cleaning, manufacturing, subsidy reduction and better targeting, the middle-class, employment, less excise on manufacturing inputs, bank reform, e-commerce and e-visas, expensive cigarettes, etc.

Arun Jaitley even underlined the intended Government efficiency in the form of a Expenditure Management Commission for the first time.  Overall, the Modi Government has made a solid effort in this budget to counter the canard of a  charge that it is merely pro-rich. There were just too many proposals to benefit all sections of the population and the country as a whole.

Amongst the new initiatives, many of the UPA’s welfare programmes have been retained, albeit for fine-tuning, to deliver better results. And everything in the long set of budget proposals is meant to convey the Government’s development-friendly direction and comprehensive approach - which in turn underlines its ambition and reformist commitment.

This messaging, as it is absorbed, will be most likely to attract private and foreign investment, because the perception is that this majority Government, with a strong party apparatus backing it, can deliver good governance and implementation of its commitments, both quickly and on time. Modi himself has a stellar development track record from his time as Chief Minister of Gujarat.

And that, given its paucity of funds to realise its objectives, this Government will be willing, even eager, to remove irritants and impediments, and meet investors’ concerns half-way for a change. This, more so, because it has inherited a worrying fiscal deficit figure of 4.1%, which it proposes to  pare down to 3.8% next year, and 3% by 2017.

And also, because this budget bears the stamp, in its fiscal caution, of a good deal of bureaucratic input, that this Government has been able to harness in a short time.

The key-drivers for the Modi Government’s intended success however, for much of what it outlined today, as in the Rail Budget that preceded it,  is a large dose of both public-private partnership (PPP), and foreign direct investment (FDI). The quantum of this money that it must attract runs into trillions of dollars, not something that has happened in India so far. But Modi is seen both as a doer and a man in-charge and India can be revisited as a great and profitable opportunity by the international community.

There are already favourable indications that a number of countries are keen, including Japan and China in particular. France and Britain have offered billion dollar long-term loans. Russia too was amongst the first to come calling.  And as Prime Minister Narendra Modi gets out and about, to the BRICS Summit very soon, to Japan, when he receives President Xi in India, and when he goes to the US, all in 2014, more offers are likely to come.

To pump up FDI in one area that currently accounts for 17% of the economy but has been languishing with massive debts, though responsible also for a good deal of employment, Real Estate Investment Trusts (REIT) have been introduced. And the foreign investment threshold in it has been lowered to suit.

Another significant move is the virtual discontinuance of retrospective taxation, Indian fashion, sending it to a cold storage limbo, even as it is a threat to domestic business, and a great irritant to foreign investment. But this, without falling afoul of its provisions in the letter of the law, by openly revoking it.

Likewise, the uniform General Sales Tax (GST), likely to see much better compliance than the present thicket of state and central taxes, is slated to come into force within a year, by which time the digital backbone required to administer it should also be up. Also, the NDA, reinforced with a gifted organisation man as its new Party President as of yesterday, is likely to have won Assembly elections in several more states by then to add its tally. This will also increase its legislative leg-room in the Rajya Sabha. And the GST implemented, will please Indian business and industry.

The Stock market was volatile throughout the day, but investors seemed to like the budget well enough. It was at 121 points up on the Sensex when the Finance Minister began to speak at 11 a.m. It dropped to 300 points minus after an hour, came back up to 300, then 400 points plus, starting in the second hour of Jaitley’s two-and-a-half-hour speech, and ended the day with a small, 72 point decline.  

The bourses, headed towards 30,000 or more on the Sensex from its present 25,500 odd, will play its part soon enough, as more than a 100 companies raise money, over Rs. 1.5 lakh crores, from the ongoing bull-run. This, and even as the Government unveils its own Rs. 80,000 crore divestment of PSU stock, from as many as 38 of its companies.  But in the end, will it do so by dilution or outright privatisation? After all, this administration does stand for more governance and less government, though we have to wait to see if this means fewer PSUs as well.

 (1,172 words)

July 10^th, 2014

Gautam Mukherjee