Deccan Chronicle

Setting the agenda for next 4 years

Deccan Chronicle| vivek sengupta

Published on: February 26, 2015 | Updated on: Invalid date

The upcoming Budget must do more to revive the investment cycle

Union Financy Minister Arun Jaitley (Photo: PTI)

Union Financy Minister Arun Jaitley (Photo: PTI)

Finance minister Arun Jaitley’s maiden Budget was presented on July 10, 2014. There was widespread expectation that it would be a big-bang Budget — like those of Manmohan Singh (July 1991), which changed the face of India, and P. Chidambaram’s 1997 "dream Budget", which was hugely pro-business.

However, Mr Jaitley’s Budget did not have the drama of those budgets. Nor was it pathbreaking in any strategic sense. It was clear that, unlike Dr Singh in 1991, Mr Jaitley had opted to wait and show his hand only when he had the opportunity to present a full year’s Budget. That moment is upon us now.

There are great expectations from Mr Jaitley because the expected acceleration in economic growth after the National Democratic Alliance government came to power has been slow in coming. This has led to disenchantment in some quarters. After creditable performances in several Assembly polls in 2014, the Bharatiya Janata Party received a big jolt in the recent Delhi state elections. There is pressure on Mr Jaitley to win back the support of those sections of the population that might have deserted the BJP in recent times.

The upcoming Budget will have to comprehensively spell out the NDA government’s plans for the economy. Mr Modi’s reforms agenda is still a work in progress. The jury is still out on whether he will be in the mould of great reformers like Margaret Thatcher and Deng Xiaoping. But some signs are telling. Till now, Mr Modi has given indications that he prefers incremental changes over big bang reform.

When the Supreme Court cancelled almost all coal mines allocated to companies since 1993, many felt that the new government might use the opportunity to clean up the mess in the coal sector. An obvious solution would be denationalisation of coal. That would be a bold economic reform that would send a message to the world. But the Centre has been conservative in this regard. It has taken important reformist steps on auctioning coal blocks, but Mr Jaitley has also made it clear that Coal India would not be disturbed.

Mr Modi is intensely political and has a keen sense of the political impact of economic decisions. He is, therefore, carefully calibrating reformist measures. So far, he has preferred to bring in administrative reforms and introduce operational efficiencies in government. Mr Jaitley’s July Budget had certain thrust areas, which were pointers to the direction in which his government wanted to take the Indian economy. Mr Jaitley has often said that he believes the way to revive the economy is to cut taxes and put more money in the hands of the people so that they can spend more.

In line with this philosophy, the finance minister gave breaks in direct taxes designed to increase the spending power of the middle classes. Expect more such cuts in this Budget. There were many proposals also to revive manufacturing, help domestic industry and give a fillip to skill development. These moves were followed up later by Mr Modi’s "Make in India" campaign. But all of the government’s efforts to galvanise private investment have yielded scant results so far. The upcoming Budget must do more to revive the investment cycle. Without investment, there will be no new jobs. Jobless youth is a huge and impatient constituency. There is an urgent need to address their needs expeditiously.

Infrastructure is a priority. In July, Mr Jaitley eased foreign direct investment in housing and spoke of building "smart cities" and industrial corridors. The railway budget opened up infrastructure projects to FDI and public-private partnership. Now, both the railway and Union Budgets can be expected to do more to give a boost to these initiatives. Linked to all of these are the core industries such as steel and its raw materials such as coal and iron ore.

Mr Jaitley must pay special attention to these if his government’s ambitious growth objectives have to be met. A very positive signal will come to investors if Mr Jaitley is able to give a firm date for the nationwide goods and services tax (GST). The GST is the single-most important piece of economic reform that the government could undertake. But GST has also proved to be the most elusive to successive finance ministers. The ball is now squarely in the court of Mr Jaitley.

Another area which is crying to be addressed is that of labour reforms. Critics have pointed out that not enough emphasis was placed in the last Budget on labour reforms. This criticism persists even after Mr Modi made some important announcements last autumn. He launched the Deendayal Upadhyay Shramev Jayate Karyakram, which comprises five schemes that the government said would boost transparency and create a business-friendly environment.

A lot more needs to be done, and done quickly, to meet industry’s demand for flexible and business-friendly labour laws. The "Make in India" programme can succeed only if rigid labour laws do not come in the way. It has been pointed out that India has 44 Central laws and about 100 state laws on labour. Most of these deserve to be scrapped — or consolidated. A lot needs to be done to take India up the rankings on ease of doing business.

Also, expect this Budget to address some other priorities of Mr Modi. These include financial inclusion and digital inclusion (communications minister Ravi Shankar Prasad has said India is set for a "digital revolution"). Sanitation is another big priority. Mr Modi’s Swachh Bharat Abhiyan, launched on Gandhi Jayanti, has galvanised the nation. However, if the cleanliness drive has to go beyond being a photo-op for celebrities, then it should be undertaken by municipal authorities. It is their responsibility and they should be empowered and adequately funded to carry out their responsibility.

This would be a challenge because of two reasons: One, since Independence, urban civic bodies have been progressively emasculated in India and state governments have usurped their power. Two, the primacy of the urban civic bodies has been undermined by multiplicity of authorities. In the social sector, the President has spoken in his address to Parliament about how education is "the priority of priorities" of the government.

This is exactly how it should be. But equally if not more important is the need to increase public expenditure on health. Mr Jaitley will have to give a big boost to public healthcare. He must also give tax breaks to key verticals in the healthcare sector and give a fillip to the health insurance sector.

The medical electronics and medical devices sector deserves special attention. And, finally, the Budget must help usher a robust framework for the growth of the pharmaceuticals and life sciences industry. It must be remembered that no nation can aspire to be a superpower if it neglects the health of its citizens.

The writer is a public affairs analyst

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