Budget season is here again and budget preparation work is perhaps in the last lap. This year, expectations run much higher than usual. It will be the Modi government’s first real budget—last year’s was a mere extension of the interim budget of the outgoing government. The post-Delhi-election perception that the chemistry Modi enjoyed with the youth and common man has been dented increases the stakes for the government. What can the budget do to restore that chemistry?
The PM and FM would do well to list out the issues that fired the imagination of people and issues on which Modi connected so resonantly with the people during the 2014 poll campaign. The budget should be a tool for laying out a roadmap for implementing these promises.
What are the main issues that attracted people towards the BJP, other than, of course, the sentiment against the Congress? Some of these are: promise of good governance, restoring and imparting growth momentum to the economy, giving boost to manufacturing, the vision for which has been demonstrated through the launch of Make-in-India, skill development for youth who are entering the work force in lakhs every year, opening of new institutions like central universities, IITs, IIMs, medical institutes, provision of basic infrastructure like bijli, pani and sadak, fostering cleanliness and cleaning of the rivers starting with Ganga. All these add up to a heavy agenda. No one can expect that these can be implemented overnight. But people do expect to see a clear action plan and roadmap, which gives hope and expectation that government is moving with sincerity. The budget must restore faith in this hope by enunciating clear policies and programmes backed by credible budgetary provisions.
What can the government do to show its commitment to good governance? Aside from perking up the bureaucracy and enforcing cleanliness in offices and punctuality through biometric attendance—which are all welcome steps—nothing more has been done. Good governance should lead to increasing the strength of the state while reducing its scope. This would require clear and transparent rules and regulations and ensuring their effective implementation. It will require enunciation of a clear citizens charter and wide application of e-governance. It will require governance reforms by reducing layers in ministries, reducing the knowledge deficit, removing mentality of working in silos, better coordination with states and faster decision-making. It will also require reducing scope of government activities in running businesses and creating more space for private sector. Some steps, like ordinance in the coal sector are potential game changers provided they are followed through and judicial activism does not derail them. Also, the benefits of deregulation of petrol and diesel can be reaped by the economy by permitting private sector entry into petroleum product distribution which can provide competition to the public sector companies who are operating as a cartel. Private sector entry (including FDI) in defence and railway sectors can provide a big boost to manufacturing sector.
The focus on the manufacturing sector and the slogan of Make-in-India are welcome and laudable objectives. The government has taken some sporadic steps in this direction but a holistic approach is lacking. There has been liberalisation of FDI in railways and defence sectors, there is talk of improving ease of doing business, some small steps for changing the labour laws have been taken and the process of land acquisition is sought to be eased. These are very small steps which have not had any impact on the ground and cannot on their own improve the business and investment climate. Investors face many non-commercial risks arising out of governance deficit, like, public policy risk, regulatory policy risk, tax policy risk, judicial risk and so on. These need to be addressed and decisions need to be fast-tracked. The budget can be used as a platform for announcing improvements in business environment, revitalisation of SEZs, clear framework for attracting FDI, putting in place a predictable and stable tax regime, including GST, and so on.
In the area of skill development, other than creating a separate ministry and renaming of some schemes, nothing much has changed on the ground. There are many cobwebs in implementation of schemes of different ministries like rural development, HRD and labour where schemes are working in silos. A clear action plan to raise skilling activities to new heights is missing. The HRD ministry needs to spell out a blue-print and a time-frame for opening new institutes of learning.
The Swacch Bharat slogan created considerable interest and excitement. Unfortunately, the perception is that it remains just that—a slogan. To make this a reality a well-conceived action plan is needed covering areas like sanitation, sewerage, toilets, garbage collection and dumping. The budget is a great opportunity for spelling out the schemes and funding through innovative means like cess on spectrum usage. The Ganga cleaning programme will require similar detailed work plans. These plans should not remain in the government but should be brought in the public domain.
Finally, the budget will need to address the heightened expectations of putting the economy on a higher growth trajectory. Growth, after all, is the only means for reducing poverty and creating employment opportunities. There are many favourable factors, which provide a unique opportunity to the finance minister to present a growth-oriented budget. Inflation is under control, global oil and commodity prices remain subdued, and macroeconomic fundamentals, including the external account, are stable. The fiscal space is available and more can be created through rationalisation of subsidies and wider use of DBT. The Jan Dhan Yojana provides a means for better targeting of subsidies as well as make them transparent and efficient. The enlarged fiscal space can provide funds for public investment in infrastructure and other programmes outlined above. Public investment in infrastructure can also be financed through, hitherto, untapped extra budgetary sources. Many PSUs , especially in the energy sector like
NTPC, have very low debt-equity ratios and have not leveraged their underlying assets for making more investments. Port Trusts are sitting on large unleveraged assets which can be unlocked by corporatising these Trusts. Corporatisation of railway production units can open up similar opportunities. Many innovative mechanisms for financing road projects under the PPP mode can be designed. The ministry of surface transport is already working on some of these.
Budget FY16 provides a real opportunity and challenge to the government to accelerate the growth momentum and reconnect with the people and rekindle the hopes for acche din. Will the finance minister grasp this opportunity?
By CM vasudev
The author is former Secretary, Economic Affairs.
e-mail: cmvasudev@gmail.com
