Column: From hope to reality

Written by Surjit S Bhalla | Updated: Jul 11 2014, 18:35pm hrs
At the traditional meeting of the finance minister with economists, I addressed the issue of how the Budget should be assessed once it is delivered. I suggested a very simple yardstickif at the end of the Budget presentation, there was even a single person comparing the BJP-Modi-Jaitley budget to the UPA budgets, then the FM should consider himself to have failed. So, how did the FM perform To be sure, there were the Congress apologists and prisoners of political opposition who felt compelled to say this was a bad budget; from my vantage point, the fact that the opposition to the Budget was fatuous, is further proof that this maiden Modi Budget was path-breaking and pro-growth in many respects.

However, I must mention that at the end of the first 45 minutes or so of the speech, I did comment: What is the difference between the BJP and the Congress There was the usual laundry-list of items to be done, the usual cook book approach to harnessing of ingredients R100 crore of coriander added to R300 crore of rice, etc. A recommendation to Jaitleyone that I have been making (without any success) to every FM for the last twenty years: Please dont mention anything in the budget speech unless its value is more than a R1,000 crore; and please adjust it for twice the inflation rate for the next 10 years.

The difference between Jaitleys Budget and the UPA budgets is not in the presentation (bad in both cases) but in the content. The BJP Budget talks about investment, and how the investments necessary for enhanced growth will be financed, how the cost of this financing has to be, and will be, substantially reduced, e.g., no CRR and SLR requirements for infrastructure investments. The UPA budgets, in contrast, talked about giving rights to all, of all kinds, including happiness; they ended up delivering everyone misery. That is the difference between Modi-Jaitley and Sonia-UPAand vive le difference!

Now for the good news, organised here according to the wish-list of many.

Retrospective taxation: Promise of no future misbehaviour but lack of clarity on what to do about tax crimes already committed by the previous government. If the spirit of this Budget is taken, and indications taken from promises about the future, then the grade is 8/10. But objectively, 5/10.

Fiscal consolidation: There is only a promise to overhaul the inherited, bad subsidy regime. The FM: I also propose to overhaul the subsidy regime, including food and petroleum subsidies, and make it more targeted while providing full protection to the marginalised, poor and SC/STs. A new urea policy would also be formulated. If the comment on NREGA...wage employment would be provided under MGNREGA through works that are more productive, asset creating and substantially linked to agriculture and allied activitiesis taken in conjunction with the comment on subsidy, there is a distinct message here: The old subsidy regime will go, replaced by more targeted (read Aadhaar-based) allocations. Score: 7/10.

Social programmes: No Indian Budget has talked so much about clean water, clean rivers, sanitation and toilets. In addition, there is considerable emphasis on empowerment of women, enhancement of programmes for the girl child, concern about the sex-ratio (female foeticide), and safety of women. The concern is well-founded, and expressed, and the strong intent of policy is discernible. No hesitation in concluding that on this much neglected social sector, the government needs to act much more, and very likely will. Score: 8/10.

Capital markets, investment and growth: One of the strongest components of Budget FY15. There is 49% FDI in insurance and defence manufacturing, and increased incentives for investment in real estate and infrastructure. And there is concern and budget provision for recapitalisation of banks. And, oh yesIndians can now manage foreign portfolio investments based in India. Such a combination of policies for growth was rarely (strike that, never) seen in the UPA Budgets of the last 10 years. Score: 9/10.

Decentralisation and power to the states: Modi, in his campaign speeches as well as during his time as Gujarat CM, constantly reiterated the importance of decentralisation, i.e., power to the states. While the Budget speech is silent on this point, a perusal of the Budget expenditure figures show that for the large Plan expenditure component (approximately 5% of the GDP), there has been a complete reversal of trend. In FY14, state plans constituted 25% of this total; in Budget FY15, the states will handle nearly 60% of the total! Score: 10/10.

Fiscal deficit: Oops, I almost forgot. Somewhat surprisingly, the FM has stuck to the target of 4.1% of GDP for FY15, rather than the widely expected 4.5%. As readers of No Proof Required know, I am not a big fan of the lazy economists approach to macroeconomicspreviously it used to be, Look at the rate of growth of money supply and now it is, What size is your fiscal deficit Thankfully, Jaitley substitutes thinking for blind regurgitation and solves his low growth, drought-infested FY15 deficit problem by selling government assets; for the future, there is the roadmap for fiscal consolidation is a fiscal deficit of 3.6% for FY16 and 3% for FY17 comment to draw from. The lower deficits will come about through, finally, the implementation of the goods and services tax, and higher growth. Score: 10/10.

No matter how you slice it, Budget FY15 (but not the long everything and dont forget the kitchen sink speech) is one of the budgets with the best content in the last two decades. One will have to wait till the February 2015, for Budget FY16, to see if the Modi-Jaitley Budget be remembered as second only (or equal to) the Narasimha Rao-Manmohan Singh budget of 1991