Priorities for the forthcoming Budget

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: above the 150% tax exemption currently available. This merits serious attention by the finance minister as more and more Indian companies will have to depend on product and process innovations to not only win greater shares in global markets, but also expand the demand base in domestic markets. I want to further suggest that those private companies that collaborate with public sector R&D and technology development establishments be given a higher incentive, as this will help rejuvenate the capacities that already exist. Suggestions to provide venture capital funds some additional incentives to support innovation, and to simplify the system of affording them tax benefits by notifying a short negative list of sectors in which these benefits will not be available, are also worth examining in this context.

It is clear that this government’s focus on maintaining high levels of social expenditure will, if anything, become even sharper in this pre-election Budget. This is indeed laudable, and I did not hear any voices of dissent at this year’s meeting. However, several economists did point to the need for improving the efficiency of these expenditures and ensuring that they actually benefit the targeted groups. This will require the introduction of a proper system of vouchers for education and healthcare. These will place direct purchasing power in the hands of the actual beneficiaries, give them choice, and—importantly—bring competitive pressure to bear upon public sector providers, especially in fields where the quality of delivery has been worsening.

The finance minister is supportive of these ideas and is positively inclined towards the introduction of smart cards for the public food distribution system. But, according to him, there are no takers for these proposals in state governments. This became evident to me from a recent interaction with one chief minister of an otherwise progressive state; the concept of vouchers and smart cards is not understood by the state-level political leadership. Chief ministers cannot distinguish between allocating monies for schemes and ensuring that these actually achieve the outcomes they are expected to yield. This will require a significant concept selling campaign. The finance minister will do well to allocate some funds for raising overall awareness of these concepts and mobilising the relevant civil society agencies to take the message to state leaderships. That will be a real contribution to the cause of performance-based budgeting, which is what the finance minister wants to establish.