The Union Budget is seen as an electoral determinant only by those whose notions of ?union? are too clinical for their own good. All the same, a well performing economy is necessary if not a sufficient condition for its beneficiaries to favour the ruling dispensation at the Centre. Whatever the gap between the stated and de facto deficit in central finances, the UPA can claim its fiscal performance as a resounding success. It has squeezed expenditure and raised revenue. Under its predecessor, the NDA, government spending was 17% of GDP. Under UPA, it is 15%. The NDA?s tax revenues were 9.2% of GDP over its tenure. The UPA has had 12% of GDP over its first four years in office. The fiscal, at this pace of progress, will happily hit its 3% of GDP target next year. Officially.
Yet, the issue is not FRBMA targets, but the fact that the UPA?s fiscal stance has ceded a large share of the country?s non-inflationary expansion of financial resources to the private sector for efficient deployment. Large enough, that is, to result in an unprecedented boom in investment and consumer exuberance. Regardless of all the hand-wringing and posturing on reforms, the Indian economy has had a dream run over the last four years. Soundbytes are soundbytes, but rapid GDP growth bears testimony to the sound mastery of macroeconomic management.
And now comes the inevitable Election Budget. Will it summarily reject the very basis of the economic success so far, as those acquainted with sop stories and please-all populism assume? Or will it see this as an opportunity to pursue reforms at the sectoral levels? With an election due early next year, it is time for the government to go ahead with all the last bits of India?s economic reformation, especially those that will not be seen as business cronyism in the guise of reforms, which could be seen as handing the aam aadmi a raw deal of shining proportions. Importantly, the government must not succumb to the ideological rhetoric of the Left. Holding everybody from getting ahead because a few are being left behind is no longer a saleable political proposition, and the most effective war against poverty remains rapid economic growth. Well-calibrated reforms face no backlash.
Thankfully there is one clear way ahead. Go for broke. A wide rather than pick-and-choose agenda would be seen as fair, and would shield the government from charges of cosiness with business. On privatisation of India?s public sector, if not equally clearly on reducing its share in GDP (which is just over a fifth), the NDA?s record was better. The UPA has time to fix this. The resurgence of state-control in the global oil sector may have slowed the shift in opinion towards privatisation of businesses with geopolitical angles, but still, what stops non-controlling shares in PSUs from being sold to sundry investors? Also, financial sector reforms languish. The banking sector, notably, needs more market competition, while the insurance, pension and investment banking sectors need to be cleared of socialist vestiges that keep the domestic economy operating suboptimally. In the infrastructure sector, India needs open access in power transmission networks and greater competition in all modes of transportation. The next year ought to be action-packed.