Modi’s first budget: A cautious step to revive Indian economy
By: Seema Sengupta
THE most sought after official document in India in the month of February is finally out in the open. Arun Jaitley, finance minister of the newly elected Narendra Modi government has presented his first budget in the august house of Parliament.
This indeed is a gigantic accounting exercise that according to the former Finance Minister Yashwant Sinha touches every aspect and all department of the Indian government in some way or the other. Besides, the budget sets the tone and tenor of the new government’s approach to the economic challenges India is currently faced with.
Amid high expectations, the Modi government was reportedly determined to come out with a “super budget” to revive the economic prospect of the country. Prime Minister Modi in all his pre-election speeches had promised to deliver a magic pill that will bolster state finances. He had committed himself to push for a new era of economic reforms and provide the Indian and foreign entrepreneurs with investment friendly infrastructure.
As Finance Minister Jaitley rightly said in his introduction to the budget speech, India is no longer ready to tolerate apathetic governance.
The primary objective of the government is to provide a high growth and low inflation regime apart from maintaining a sustained external balance and unfettered commitment to fiscal prudence. And following the legacy of the illustrious predecessors, neither Modi nor his finance minister is averse to traversing the easy path of selling family jewels to finance government schemes.
Modi hopes to kickstart the promised growth and job agenda that won him the biggest electoral mandate in three decades by hiving off stakes in India’s major and strategic public sector companies. He has already approved a slew of crucial infrastructure projects and ready to embark on what promises to be a whirlwind era of aggressive trade diplomacy. Modi knows that it is not easy to surmount the economic ills that plagued even the administration of a world renowned economist like Manmohan Singh.
That precisely is the reason why Jaitley asserted forcefully during his budget presentation in parliament that the promised “good days” are still some time away and he is only expecting the growth to touch 8 percent mark in the next three to four years.
Jaitley knows too well that weak growth caused by domestic and international factors coupled with runaway inflation, uncontrolled spending and too little investment has taken a toll on the country’s economic health. His maiden budget therefore seeks to restore growth while curbing unnecessary borrowing.
There is particular emphasis on agriculture, infrastructure, manufacturing and power sector. As expected, the government has unveiled a major initiative to boost irrigation and shield farmers from the vagaries of monsoon given the grim meteorological forecast. Surely, the emphasis will be on watershed management and building a strong and viable national farm products market.
The decision to launch tax reform for unifying India’s 29 federal states into a common market, reviving special economic zones, building smart cities, promoting small industries and lavish spending on road and water infrastructure can indeed become the launch pad for restoring the health of the national economy which has been staggering for quite some time now. Moreover, the finance minister has also given due importance, though on a small scale, to urgent social issues like drinking water and sanitation.
However, the government must remain extra-cautious even as we accept foreign capital lock-stock and barrel to promote growth. Let us not forget that the wellness of India’s economic ecosystem and her core strategic interests are intertwined. In spite of the market reforms of 1991 that brought down the curtains on decades of socialist isolation, vast tracts of Asia’s third-largest economy remained severely under-developed and neglected.
It led to an upsurge of militancy in the hinterlands. Ever since independence, India adopted a wealth-friendly approach to achieve stability.
Successive governments sought to buy popular loyalty by providing various freebies and mass employment while India’s industrial expansion plans were bereft of profit motives.
For a nation which obtained self-rule after century of subjugation, it was not unnatural to be extra-protective. But now the time has arrived for a policy rejig without compromising the nation’s economic sovereignty. Also, the government must give adequate attention to the dangers of harnessing resources from national asset sales to finance growth.
Besides, Modi, who firmly believes that job preservation hinders job creation, is aiming to transform India into a major manufacturing hub with the help of foreign capital. But diminishing job security due to indiscriminate labor law reforms and the resulting retrenchment will disincentivize spending and leave India with reduced demand and little domestic capital to absorb the growing output. Since, this will lead to overdependence on export, New Delhi must chalk out a plan in advance to meet such a situation in the foreseeable future. Modi would therefore do well to start investing adequately in the economies of probable consumer countries in the South Asian periphery and beyond without further delay.
Seema Sengupta is a Calcutta-based journalist and columnist