The finance minister, P Chidambaram, managed to present a
fairly balanced Union Budget. The stock markets initially treated the budget as
a non-event. There were no big unforeseen surprises and it was relatively
measured given that we are in a pre-election year. It is hard to ignore that
the global economy continues to be in turmoil. The Central statistical organization (CSO), in
its advanced estimate pegged India's GDP growth at a modest 5% for the current
fiscal. Committed solutions are required to comfortably decouple from global
trends.
The announcement that the fiscal deficit has been reigned in
well within the targeted levels to 5.2% is good news. A continued commitment to
eliminating the revenue deficit over a fixed time horizon is even better news.
After over a decade of expansion of the real economy and domestic consumption,
the Indian economy is now at a veritable crossroads. The government has to
urgently create viable investment opportunities and support long term gross
capital formation.
Households must be able to derive value from productive
assets, and Chidambaram rightly noted that they "must be incentivised to
save in financial instruments". The proposals to introduce inflation
linked instruments and create a new debt segment in national exchanges will
certainly aid such objectives; and concomitantly contribute to the
sustainability of the current account deficit.
However, an unwavering systemic emphasis on well regulated,
competitive and transparent markets with reduced transaction costs is still
required. Industrial growth, particularly manufacturing sector growth must
underpin resilient GDP growth. The Micro, Small and Medium Enterprises (MSME)
sector has a crucial role to play in enabling this, and the extension of
benefits for a period of 3 years after graduation to a higher category bodes
well for increased participation and interest in the sector.
In consonance with popular sentiment, Chidambaram laid out a
three-pronged development approach, emphasising empowerment of women, the youth
and the poor. Some of the initiatives that are circumscribed within this
approach include the setting up of a public sector women’s bank with an initial
capitalisation of Rs. 1,000 crore; a Nirbhaya fund of a Rs. 1,000 crore;
emphasis on skill development and the development of a skill-based curriculum;
and the assurance that Direct Benefits Transfers will roll out “during the term
of the UPA”. While the existing 173 Centre-sponsored schemes will be reduced to
just 70, subject to review every two years, the Rs. 5.5 lakh crore figure for
planned expenditure reflects an approximate 30% jump over revised estimates.
Within the context of revenue generation imperatives to
offset increased expenditure, the fact that both direct and indirect taxes have
remained relatively untouched, is certainly progressive. The budget is not
practically feasible unless there is enhanced private sector participation,
stability of long term capital inflows, expansion of the tax base, and
effective control of the price level. This in turn requires recalibration of
priorities — and a shift from short term focus to a medium term focus, and a
tempered pre-election budget is a step in the right direction.
