The votaries of big bang reforms—and the middle class expecting dividends on their investment in Elections 2014 —absorbed an important tutorial on Saturday. A political majority does not necessarily translate expectations into reality.
Blame it on the campaign rhetoric of Achche Din. Blame it on the impatience of a people who voted a majority mandate. Blame it on the optics of the much-celebrated growth numbers. Budget 2015 dashed the expectations of those who voted for political entrepreneurship.
Mind you, the government couldn’t have asked for a better window of opportunity—in terms of politics and the economics. This government is blessed with a full majority, there are no elections for the next eight months, and global economic climate is benign.
On the face of it, shorn of expectations, Budget 2015 is not a poor effort. There is the commitment to fiscal consolidation—and it must be commended—to bring deficit down to 3 per cent of GDP in three years. There is a commendable effort to bring the benefits of group insurance to the poor and marginalised—though a lot depends on implementation. There is the attempt to expand funding for rail, road and infrastructure. There is also the adoption of innovation—the induction of India Post for financial inclusion (http://bit.ly/1FFPAgn), the acceptance of Aadhar for Direct Benefit Transfers (http://bit.ly/1aslr3e) and the creation of a National Agricultural Market (http://bit.ly/1pfJUiz) I have long argued for.
There is also the lure for investors—Indian and foreign. There is the initiative to cut corporate tax from 30 per cent to 25 per cent from next year and the cleaning up of contentious exemptions, the reiteration of the commitment on staying away from retrospective taxation, the extinguishing of the distinction between FDI and FII, the postponement of GAAR, the hope of GST next year, the Direct Tax Code, a legislation on creating a regulatory authority to replace permissions regime, and hopefully the clearance and passage of the ordinances on land, insurance and mining.
Budget 2015 flails because it is stranded between the ifs and buts of implementation and systemic sloth. The 11,424-word speech is eloquent on promises but less than articulate on timelines and action plans.
Take government expenditure. The government will continue to live well beyond its means and borrow more than it did last year. In 2015-16, government borrowings will be more than last year—Rs. 6 lakh crore or Rs. 1,643 crore a day. Of this, Rs. 456,145 crore—or three-fourths—will be used to pay interest. Imagine if crude prices had not fallen. Imagine the fiscal shock that the next pay commission will deal.
The quest for fiscal consolidation demands attention to efficiency in money management. Whatever happened to the Expenditure Management Commission? What about expenditure reforms? Take subsidies. Government of India will continue to spend Rs. 667 crore per day or Rs. 27 crore an hour on subsidies—a large chunk of which is waylaid by political interests. Yet the budget is silent on the expansion of the idea of Direct Benefit Transfers to cut leakage and theft.
The biggest hope from the government is revival of growth. The idea of Make in India deserved attention to devilish detail. Global competitiveness demands restructuring of the inverted tax structure, dismantling of permission raj, levelling the high cost of power, resolving the logistics nightmare, reducing the unreal cost of freight, bringing down the cost of capital, and an end to inspector raj.
Where the budget falters is in its inability to deliver on the expectations of quantum change—or even give a sense of imminent change. Yes, there was the expectation of sops for the salaried class, but more significantly the hope was for a catalytic accelerator, a reiteration of maximum governance. Yes, the budget is a statement of accounts. Of course reforms are an ongoing process, not an event. But there is no escaping the fact that February 28 was billed as the milestone for big change.
Over 60 per cent of India’s population is under the age of 35. India’s young populace—nearly half of whom were born around the 1991 reforms—has spent their life waiting for promises to come true. Déjà vu is a recurring punctuation in India’s reforms song, in each of the 25 budgets I have written about since 1991—following the pledging of India’s gold reserves to raise foreign exchange. There are paragraphs and pages about India’s potential followed by the lack of resources, the distress in agriculture, the lack of manufacturing competitiveness, the need to ramp up power generation, the imperative of cutting cost of capital, the need to raise long-term finances, the need to improve tax GDP ratio, the need to create infrastructure, the need to create jobs and the pain of losses, leakage and theft.
The India Story is detained by status quoism. This must change. The Modi Sarkar must leverage its political capital to deliver economic dividends. shankkar.aiyar@gmail.com