As India?s economy and polity have matured, the annual Budget exercise has become less significant as a shaper of policy. This year, with sustained economic success apparently in the country?s reach, the finance minister?s task has perhaps never been easier.
Still, the Congress just lost two state assembly elections, and if inflation stays too high, that (coupled with the deeper problem of rising inequality) could make the ruling party pay a heavy political price.
The fundamental problem, as well stated by the Prime Minister and the FM, is how to increase the inclusiveness of India?s growth, while continuing to accelerate that growth towards double digits. The entire Budget should be assessed in the light of that prime objective.
Unsurprisingly, there are significant increases budgeted for rural infrastructure, education and health. These are politically necessary. They also have the potential to make a dent in the need for inclusiveness in growth. But what of the systemic reforms that are necessary to make the increased expenditure well targeted and productive? What happened to the talk of assessing outcomes? Even if these institutional developments are underway, the plans for increased expenditure would have more credibility as genuine moves toward inclusive growth if accompanied by an assessment of progress. In this respect, the kinds of numerical achievements reported in the Budget, such as ?drinking water provided to 55,512 habitations,? are unreliable indicators of true access, quality or benefits. Speaking of making government expenditure more effective, whatever happened to civil service reform? Why is there no progress report here?though the increased allocation for e-governance may provide the technological means to leapfrog some of the problems of the current organisation of government?
On the plus side, in terms of setting strategic goals, the latest Budget pushes along the tax reform agenda, with plans for a roadmap for the national Goods & Services Tax (GST). There are a host of innovations to strengthen the financial sector, and we can look forward to the report of the committee on making Mumbai a financial hub. Interestingly, in the financial domain, there are proposals that range from new methods of financing large infrastructure projects to ones for providing social insurance for the rural poor. As long as the government keeps enabling such institutional innovations, without trying to dominate implementation, the economy will keep on the right track.
The reductions in various customs and excise duty rates were expected, but still welcome. Even if the justification was somewhat ad hoc, based on the recent rise in inflation, these policy moves are in the right direction. Most of the other tinkering with indirect and direct taxes is unobjectionable, though one wonders about decisions such as the cut in duty for pet food?are pet owners a powerful lobby? People who purchase pet food are certainly not in the ?aam aadmi? category. Much of the detail with respect to service taxes will emerge later, but based on the Budget speech, one is inclined to argue for a simpler approach to indirect taxation overall, with fewer exemptions and rate categories.
? What happened to the talk of assessing outcomes? |
Tax breaks to encourage investment and innovation also find their way regularly into the Budget. Some of these make sense, but a five-year income tax holiday for hotels in the vicinity of Delhi, simply for the Commonwealth Games, seems like another bone for those who would do quite well without it, thank you. I would rather see more substantial support for student scholarships and for institutions such as the ITIs, rather than the token amounts they have been allocated. We should stop trying to impress foreigners at the expense of our own janata , especially here?we do so poorly at athletics.
Still, there is plenty in the Budget to be positive about, and many of the seemingly small efforts will eventually add up to significant changes in how the economy operates. In some ways, that has been the ongoing story of economic reforms in India. If the new spending on health, education and agriculture comes with complementary institutional reforms, this may turn out to be a great effort. For now, I would give it a B+.
?Nirvikar Singh is professor of Economics at the University of California, Santa Cruz