The Prime Minister’s warning on the need to administer “bitter medicine” in order to rescue the economy is the first clear indication that the maiden Budget of the BJP-led government, to be presented to Parliament in July, is not going to be populist. While the current government may have many sound reasons to blame its predecessor for the country’s current economic ills, the fact remains that sub-five-per-cent growth is hardly likely to have led to a spurt in tax collections. Greater buoyancy in the economy is not as easily achieved as curbing wasteful expenditure and Mr Modi’s promise of “minimum government, maximum governance” stands to be tested straightaway.
The emphasis is certain to be on fiscal prudence. There are no shortcuts to this. The inflation-versus-growth debate has led already to a conservative call on the banking rates by the Reserve Bank in its last call on the economy. One way to ease pressures on interest rates would be for the government to borrow less. The days of runaway spending should be put behind us if the Indian economy is to pick itself up from the post-2008 slump in the world economy. Tight belts must first be worn by the Centre even as it tries to pass on tips to states already lining up for additional funds for development.
The promise of grandiose schemes in the infrastructure sector would probably have to wait as there is no clear way as yet to find the funding for projects with long-term gestation. Also, there are legislative constraints on the disinvestment process, which have to be tackled on a war footing if the Centre is to find the promised funds for a fresh round of development and growth. A silver lining is the long bull run in the stock market, which might help get a good realisation from the sale of shares held by the government so that the fiscal deficit can be controlled somewhat.
An aspirational India may feel buoyed by the election result, but the ground realities and the early warnings on the economy and the Budget would have dampened the spirit somewhat. A new danger is the cascading effect of fears over the Iraq situation’s effect on crude oil prices. It appears that the wisdom of finance minister Arun Jaitley’s prophetic words — “We must commit ourselves to fiscal discipline in order to strengthen the Indian economy” and “Short-term discipline till we reverse the present trend will give us long-term benefits” — clearly point to a future in which profligacy has to be reined in first, and long before growth can be stimulated. No one envies the Prime Minister and the finance minister’s lot now. Their ingenuity will determine how the economy takes off after three years of abysmal growth.
