Indian Union Budget: an Oportunity Lost
It was eagerly anticipated, if the maiden budget of the newly elected Modi government could steer the Indian economy from the morass where it had been deposited by the previous government. Unfortunately, it is nothing more than a solid middle of the road budget, says Awani Tevari.
The maiden budget of the newly elected Modi government was presented by the Finance Minister on July 10 in the backdrop of moderate economic growth, low investor confidence, high inflation, widening current and fiscal account deficit, and a host of poor economic indicators. The budget, which at the best of times is awaited expectantly, was even more eagerly anticipated from the Indian industry and international business community wanting to know the economic philosophy and direction of the new government and whether it could steer the Indian economy from the morass where it had been deposited by the previous government.
The budget is an important tool through which the government expresses how it plans to raise revenue for its functioning and how it allocates funds for implementation of the proposed plans and policies of the government. Through the budget one can also judge the state of a country’s economy. In India the budget is presented by the Finance Minister in form of a financial and appropriation bill, which has to be passed by the parliament before coming into effect.
Why is the first budget important?
The first budget of a newly elected government gives an important signal about the government’s commitment towards the economic reforms it has promised during the electoral campaigns. It also gives a detailed insight on how much the government would spend on its social policies and how the money, collected through taxes, is being utilised. The first budget in India, after independence, was presented by R.K. Shanmukham Chetty on November 26th 1947. Since then the budget has been presented on a yearly basis.
During the electoral campaign of BJP, Narendra Modi had promised that he would work towards reviving the slithering Indian economy. He had also promised infrastructural reforms and new policies for the welfare of people. More employment opportunities and control over inflation were also some of the issues raised by Modi in his campaigns. After the BJP got elected, the people of India placed high hopes in the new government, that it would fulfil all the promises made during the election campaigns. Commenting on the expectations of the first budget of the Modi government, the "The Times of India" wrote that,
“Typically, first budgets tend to be lacklustre as an incoming government is in the process of finding its feet. However, the Narendra Modi government has come in on a big mandate and promise of transformational change. It, therefore, needs to depart from standard practice of governments — which treat budgets as an exercise in distribution of spoils with over-the-top spending programmes trying to boost demand for a chosen few — and address the supply side."
Positive features of the first budget
The budget presented by Arun Jaitely, the Indian Finance Minister, had a number of positive features. The first was with respect to a stable policy environment as introduction of retrospective taxation by the previous government had been a major factor in keeping foreign investors away from India. The budget stated that the Government will exercise extreme caution, while undertaking retrospective taxation, keeping in mind the impact of such measures on the economy and the overall investment climate, and it will ensure a stable and predictable tax regime, which will be investor friendly and spur growth. The budget also made introduction of a unified Goods and Services Tax (GST), a high priority task, as the previous government had been unable to get the state governments on board on this. Liberalization of FDI in insurance, defence manufacturing, growth of smart cities and e-commerce sectors are other key impact areas. It is anticipated, that these measures will help to attain the goal of 7 to 8 % economic growth in the coming 3 to 4 years.
Different opinions were articulated on the budget by journalists, businessmen and economists regarding how effective it would be in putting India’s economy back on the growth trajectory. Some opined that the economic priorities of this budget do not vary from the previous budgets and others call the budget a proposal for fulfilling the promises the BJP made during the electoral campaigns. An article in "the Hindu" says that,
“Union Finance Minister Arun Jaitley’s maiden Budget signalled bold strides on the intent of the Modi government to deliver on its election promises, but stopped short of unveiling clear strategies for achieving them. At one level, it signalled broad continuity with the policy thrust of the UPA government."
Measures such as introduction of Goods and Services Tax, investment in different sectors by the government, liberalisation of FDI in defence and insurance, commencement of new projects and improvements in the existing infrastructure are viewed as moves that would make conditions viable for a stable economy. "The Hindu" says that, “The Finance Minister has presented a realistic budget, which sets the stage for growth to be the centre of economic policy with the right environment for investment and stable conditions to make it easier." Another article in "the Hindu" (PDF) says that this budget would help in the long term development of the nation. It says,
“Budget 2014-15 augurs well for the domestic economy as it focuses on the medium term rather than short term. Arun Jaitley has talked about fiscal prudence by maintaining inter-generational equity. The proposal of setting up an expenditure management committee is also forward looking. Announcements on the implementation of the Goods and Services Tax and a cautious approach toward retrospective taxes have lived up to people’s expectations.”
Criticisms to the first Budget
However there are critics to the first budget presented by the Modi government. They say that the budget would not help in significantly reviving the economy as there were no major changes from the economic policies practised by the erstwhile UPA government. "The Asian Age" on July 12th says that,
“Market fundamentalists are seeking to disguise their disappointment that the first Budget of a BJP-led government in which the saffron party holds a clear majority could not break the shackles of a Congress-led UPA-style economic regime, that it did not make a “structural” shift and give economic direction of a new type."
The budget was also termed as “uninspiring and insipid” by a former commerce minister Anand Sharma, as he opposed the move of the government to raise foreign investment, and said that, “An announcement of 49% cap with substantial Indian control will not enthuse any major foreign investor to invest in the country."
To me it appears that the maiden budget of the new government is a solid middle of the road budget, which is likely to address issues of low growth and employment, high inflation, improved infrastructure and widening fiscal deficit. However, with its huge mandate, a non-existing opposition and no parliamentary elections for the next five years, the new government could have taken some bolder policy initiatives without fear of adverse consequences at the hustings.