The annual pre-Budget halwa has been cooked, served and eaten; and by all means looked delicious. Beyond its customary symbolism, there was a lot for India to cheer on the economic front — as the largest growing economy in the world amongst the big-sized national economies, having averted all crises, and the government could afford its little fun moment.
The questions, praise and criticism that will follow the week ahead will be based on how the “election Budget” (the government will only have a vote on account next year and a new government would formalise it, pro rata), is perceived by citizens, and how much of a share of the halwa do they feel they have received.
There are three major contexts that would matter most to the maximum number of people and the country would expect that finance minister Nirmala Sitharaman backs and puts money where politically Prime Minister Narendra Modi is most committed to — increase purchasing power of people, unleash the animal spirits in the private investors and continue reforms.
In short, pursue growth. The Budget would be singularly analysed, criticised and judged for its ability to unleash the Indian economy on a rapid growth path. It looks like a moderate priority, however, for the BJP government. Last month, the Reserve Bank of India (RBI) lowered India’s GDP growth forecast to 6.8 per cent for the current fiscal, from seven per cent, citing “continued geopolitical tensions” and “tightening of global financial conditions”.
When economists and experts talk of balancing growth and inflation, they overlook the fact that, while a person, and family, with income face difficulty with rising prices, a person and family without a job and income suffers vastly more at all levels of inflation. Thus, growth is the only way out if we must give more people new jobs.
Rapid jobs creation at all levels, across states and regions, can happen — and has a huge political advantage too for the incumbent government — if private investments grow, inflation and fiscal deficit are ignored, and even sacrificed in the short term, to pursue higher growth, through greater investments and more reforms.
The government has already found some leg space. The retail inflation, measured by the consumer price index (CPI), dropped to a one-year low of 5.72 per cent in December 2022, from 5.88 per cent a month before. The government has budgeted a fiscal deficit of around Rs 16.61 lakh crore, or 6.4 per cent of the GDP, in the current year ending March 2023.
We could do with higher inflation and a higher level of fiscal deficit; if only we can unleash private investment and greater spending power in the middle classes through big income tax rate cuts, ambitious reforms and privatisation, and cutting of red tape and rules governing all aspects of business.
The middle classes must not be taken for granted any longer, and instead of duty-bound tax payers, must be respected for a larger role — as strategic growth-inducing spenders, and for that, there must be tax rate cuts making us the lowest direct taxing nation in the world, and thus, the fastest growing one....