Column: One Giant Step for India

This Budget will be judged as the second-most important Budget in Indian history

Chhodo kal ki baatein,
kal ki baat purani,
naye daur mein likhenge,
milkar nayi kahani

When Neil Armstrong landed on the moon on July 20, 1969, he said, “That’s one small step for (a) man, one giant leap for mankind.” The Budget 2015, presented by finance minister Arun Jaitley, can be described as: “Several small steps of reform equal one giant step for India.” Or one big bang Budget composed of a series of small bombs which in a chain reaction can result in the beginning of a structural transformation of the caught-in-its-own-traps mindset of India.

The first big bang was provided by the former RBI Governor, YV Reddy, in his 14th Finance Commission Report. Devolution to states, allowing states to make their own errors, and own good policies. It allows Kerala to pursue education and health, and it allows Akhilesh Yadav to look for gold under temples, if his government chooses to do so. The second big bang came in the form of Suresh Prabhu’s Rail Budget. When it was presented, market experts discounted it because it did not lower subsidies for passenger fares. The market woke up 18 hours later to realise that what Prabhu had provided was a big bang in the way we think about railways, and that investment was needed to improve the railways and provide jobs. The third and final big bang was provided yesterday by finance minister Jaitley. True to form, the market collapsed, but this time, woke up faster than it did when the Rail Budget was presented, and ended on its highs.

From the moment he quoted a passage which talked of an “inheritance of thorns, at least in terms of the economy and the policies pursued in the past”, one knew that this was a Budget with a difference. Appropriately, the speech started with what needs to be done to reform agriculture, one sector of the economy that has been completely untouched by reforms—to date. No more. Some steps towards reforming agriculture, a national market for agricultural produce, and related removal of poverty, formed the core of the first half of Jaitley’s speech.

So what did we expect from the Budget? We expected vision, and we certainly got that. What is this vision? Let us look at an important component of the Budget—the promise of social security and pensions for the poor. When the finance minister was delivering his speech, the Twitterati were agog with speculation and comments that this was a Kejri Budget or a UPA-3 Budget. Nothing could be further than the truth.

This is a radical departure from the past way of doing things. The Congress has intervened for years dreaming up schemes (scams?) that were meant to help the poor but ended up helping everybody but the poor. The Aam Aadmi Party wants to help the poor by promising free water, half price of electricity and, let us not forget, free wi-fi. What does the Jaitley Budget do? It says that the poor must have social security and that they should pay a nominal amount for it (R1 a month for a R2 lakh pension), and the rest being made up by the government through a subsidy. This was an important signal of the roadmap people were looking for—a roadmap of what policies will be pursued. If the AAP or the Congress had made this policy, it would be poverty removal naam ke vaaste; here, it was a different  approach towards helping the poor.

Then there was a definite Dengian sting to the Budget—the wealth tax got removed not because the Modi-Jaitley Budget wanted to decrease taxes for the super-rich, but because they wanted to increase the tax the rich paid—and with it, the yield in terms of tax revenue. The government obtained very little from the wealth tax and only satisfied the morality brigade of the left (the equivalent of the moral police of the right that does not believe women should live their own lives). Instead, he brought in a surcharge of 2% for those earning more than R1 crore a year. These individuals are in the tax net (most of them anyway) and the surcharge will involve zero additional costs of tax administration—i.e. back the cat that catches mice, not the cat that philosophises about poverty from an arm-chair.

The pressures of producing quick responses means that we, the so-called “experts”, miss out on both the vision, and the detail. I believe this Budget is a game-changer, and history will judge it to be easily the second-most important Budget in Indian history. I want to sit back, and savour the vision, and be proud that finally India is moving towards being a modern state, and a state that is both pro-growth and genuinely pro-poor.

By Surjit S Bhalla, Chairman, Oxus Investments

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