Mumbai: Onions can bring down governments. This is a fact witnessed in recent Indian history. Such are the conundrums facing the country that presenting a general Budget is the equivalent of a juggler walking on a tightrope and managing to stay alive while multitasking. Arun Jaitley’s task is most unenviable even if he has the wholehearted support of his superior Narendra Modi who will clearly be involved in every aspect of the great financial exercise.
Inflation is so corrosive as to exacerbate the crisis of the rising cost of living index that affects every Indian, save the richest. The BJP-led government has already signalled its happiness with the RBI taking a stern line against rising food prices by keeping the interest rates pegged at the existing high levels. Steps taken to rein in onion and potato prices by raising the minimum export threshold price is a clear enough indication of where the Modi regime’s priorities lie at the moment.
Given this battle against the WPI that is being driven up mostly by food prices, how then would Mr Modi and Mr Jaitley go ahead injecting a growth impetus in the budget? The Iraq situation is not going to help India. The rising oil prices — with the benchmark Brent crude hitting $114 per barrel — will also have a big impact on the current account deficit. If the oil prices go out of control, what will happen to India’s import bills?
A virtually sadistic Mr P. Chidambaram who was known to take delight in taxing every rupee possible out of everyone who had a little bit, was reportedly wise enough to rein in the CAD in his last year in office by curbing the import of gold. Does the new government take the same line on the yellow metal that fascinates India so much? If the BJP wants to reduce tax on gold to please the electorate, where then would it find the resources or the bitter pills to keep the best inside CAD at bay?
India’s great bugbear of the immediate future is going to be rampant unemployment in a country with an increasingly younger demographic profile. This bears similarities to the Spanish situation with the young and the restless left with little to do. How is it possible to generate employment without giving a fillip to manufacturing because the services sector can take only so many numbers? If there is no growth in manufacturing to satiate the rising demand for goods from an aspirational population, the import of cheap Chinese goods is not going to provide the answer because all it would do is line the pockets of importers and traders while doing nothing to tend to the unemployment figures.
The conundrums are endless. The raging bull of Dalal Street is only a political endorsement of the new regime. It is an index of expectations rather than a reflection of any change in the fundamentals. If I were in Mr Jaitley’s place, I would first pray that a new wisdom dawns to show the way past the trickiest exercise in world economics of how to put a country with a sub- five percent growth in the last three years on the path to the heady heights attained in the wake of the reforms of the ’90s and which have to be replicated in an economically and politically far more difficult times.
(G. Sekar is Chennai-based Chartered Accountant. He is Chairman, Direct Taxes Committee, Institute of Chartered Accountants of India)
