Finance minister Nirmala Sitharaman has indicated that she will focus in the coming Budget on health and education, which have long been deprived of their due share of fiscal resources. Reports also suggest that the Budget will be low on new “reforms,” in the sense of substantive further liberalisation of factor market elements like land, labour and capital. Since electoral concerns are very much on its mind, aggressive privatisation and expenditure rationalisation seem to be off the agenda of the present NDA government. Budget FY24 is the last full Budget before the general elections in 2024 and the assembly elections in 10 states spread over 2023. Though, on the face of it, the slowing of the reform pace is not in conformity with the need to enhance the productive capacity of the economy through structural reforms and thereby increase its apparently falling potential growth rate, the path the government has chosen to tread is in fact sensible. A great deal of reforms that are not politically contentious is already under way. If these are implemented with gusto, and deadlines and goals set are met, the required impetus for the economy won’t be found lacking.
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For instance, while land reforms in terms of minimising rent-seeking and making available this finite resource for new global-scale manufacturing units are an unfinished agenda, land acquisition for “public purposes”—read infrastructure—has in recent years become much easier. True, the four Labour Codes passed by Parliament in September 2020 are yet to be rolled out, but labour market rigidities have already come down to an extent, with many states going ahead with steps to ease the norms. Firms in labour-intensive industries are now resorting to fixed-term employment as a legitimate option. The GST, despite its structural infirmities, has reduced the cascading nature of indirect taxes to an extent, besides aiding the formalisation of the economy. Another key constraint of the Indian economy is the high logistical costs, at 14% of the GDP now. Apart from fast-paced infrastructure creation, the national master plan for multi-modal connectivity—PM Gati Shakti—aims to cut the cost of logistics to 4-5% of the GDP. If this plan fructifies, India could save `10 trillion annually, and improve its global competence significantly. The coal sector, which remained a vestige of regressive state monopoly, is being populated with private players, and there are early indications of this resulting in an acceleration in domestic production, with “captive mines” getting freedom to sell in the open market. Wrinkles in the IBC are being ironed out and the government is leaving no stone unturned when it comes to persuading—even forcing—the states to make the power sector commercially viable.
The government’s digital push has vastly improved governance and increased efficiency in various spheres, including private commerce. Thanks to direct benefit transfer (DBT) , there is much higher efficacy now of assorted government programmes and welfare schemes. Production-linked incentives are being extended liberally to over a dozen industries to accomplish the vision of Atmanirbhar Bharat, millions of new jobs, and billions of dollars of additional production in the next five years. So, if reforms in controversial areas such as marketing of agricultural products or capping of fertiliser subsidy based on land-holdings or privatisation of state-owned banks are being postponed to a more conducive time, it ought not to be a reason to cavil about. The scaling up of government investments in health and education, after all, is a potent reform that has emancipatory potential for vast sections of people, and would indeed buttress human capital. Economic reforms will yield optimal results only if they also help cement social cohesiveness.