The biggest challenge that the NDA government led by Narendra Modi faced in framing Budget 2014-15 is the high popular expectations the new government had aroused—more than any government since Independence. The UPA’s colossal failure only heightened aspirations, which would not be easy for any government to fulfill. An added stress factor is the macroeconomic plague of high fiscal deficit threatening to force the government into a debt trap by next year and the concealed current account deficit that had been artificially reduced by borrowing $40 billion from NRIs at high cost. The interim budget presented by Arun Jaitley’s predecessor had fudged the figures to understate the deficit. Thus, on both external and domestic fronts the new government is facing relentless pressure. The UPA had consistently bribed voters through extravagant populist schemes. All this necessitated huge course correction by Jaitley. But in framing the budget, he could not tax a weak economy. Nor could he cut spending beyond means as the faltering economy needs more money to revive. Moreover, facing the hostile context that Modinomics would be corporate-friendly, excluding the poor and backward, it would have been inadvisable for the new government to rationalise the populist spend.
Arun Jaitley rightly started by saying that the budget is only a beginning and is directional—meaning that reconstructing the economy has only begun. This caveat may be seen as an attempt to temper high popular expectations. Considering that the UPA’s last budget has already covered one financial quarter, and this budget’s life is just another seven months, it can only be a start for revival. Given the explicit constraints, the government’s first budget deserves to be ranked as a good job in a bad situation. Its most significant aspect is the high allocation for infrastructure. Jaitley has raised plan allocations by `1 lakh crore over the actual in 2013-14. Of this, the infrastructure alone gets `75,000 crore. If the capex for modernising defence, cleaning the Ganga and boosting tourism is added, it would rise to `83,000 crore. The most critical component of infra-spend is `38,000 crore meant for roads. It was such a large allocation for the Golden Quadrilateral that triggered the job revolution during the NDA regime of 1999-2000. Given the thrust of the Modi government on job creation this is a vital push, one that is equally infra-investment and a job creation enterprise. The provision is fairly high for agricultural and rural infra—almost `22,000 crore, of which, the flagship allocation for rural roads under the Prime Minister’s Gram Sadak Yojana is `14,389 crore. Each of these involve job intensive capex. The most critical element of the budget, which is ignored in the corporate-led media discourse, is contained in Para 102 of Jaitley’s budget speech. This is the first time that a budget specially focuses on creating a special financial architecture for the non-corporate sector, which produces over 100 million jobs but receives only 4 per cent of its financial needs from banks. This is precisely what this newspaper had said in the article titled “Will the General Budget Fuel the Real Growth Engines?” (TNIE, 30.6.14). It would cause a paradigm shift if a new financial architecture for the non-corporate sector is established. Jaitley also speaks of a provision of `10,000 crore as a corpus for venture fund non-corporate startups, which could generate investments several times the amount. This could revolutionise the non-corporate sector, since with a fixed asset investment of `11.5 lakh crore, it would generate an annual value addition of `6.28 lakh crore and 105 million jobs. Every rupee put in this sector would multiply employment in the corporate sector. If the intent of the budget in this respect is translated into action, the country would hit the jackpot in growth.
Two other significant measures have been partially missed in the budget debate. One is the change in the direction of promoting family savings. All UPA schemes were focused on stock markets, which yielded nothing. This budget turns attention to risk-less family-compatible savings like PPF and own-housing, offering tax shelter. The other important measure is the reorientation of MGREGA, which the UPA had structured as a freebie. Jaitley has linked it to agricultural work and asset creation so that it stops from being just a gift. There are several good points in the budget like Expenditure Management Commission, measures to target specific issues in tax disputes, extending the advance ruling model in tax law to resident companies, port development, inland navigation, substantial provisions for safe drinking water in 20000 affected areas and others. While all this is explicit, the devil that is in the detail will appear only when the full budget documents are out in public.
But one thing is clear. Jaitley has been opaque on the quantum of the fiscal deficit for 2014-15. He has merely stated that his predecessor has kept a challenging target of 4.1 per cent and that he would accept the challenge. He has labelled Chidambaram’s revenue targets as ambitious and adds a further `32,000 crore on the expenditure side. Yet he hopes to achieve the last finance minister’s target. Here Jaitley could have been more open. Finally, the biggest challenge is how the Modi government would manage to spend the allocated infrastructure amount in less than eight months. Unless Modi displays in Delhi the speed he had demonstrated in Ahmedabad, a part of the development spend would remain on paper. Achieving the development spending target will be crucial for economic recovery.