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A pivot for reforms

A pivot for reforms
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First Published: Tue, Feb 02 2010. 12 26 AM IST

Updated: Tue, Feb 02 2010. 12 26 AM IST
New Delhi: By 27 February (this year’s Budget is to be presented on 26 February), in a period of a little over 12 months, Pranab Mukherjee would have presented three budgets—two of them in contrasting circumstances that have undeniably influenced the broad contours of each.
If there is a common thread that runs through the three, it is inclusiveness. It is the pivot on which the minister has been able to put across a larger reform agenda, deliberately understated, without actually inviting political attack from the Opposition.
Armed with the confidence that the macroeconomic backdrop is significantly steadier than it was last year, Mukherjee is likely to find it easier to bring the focus back to the basics and make the Budget an exercise in consolidation with an eye on the future. With the tax structure due for a major overhaul next year with the introduction of the direct tax code and the single goods and services tax, it is only natural to expect the minister to focus his energies on a hitherto neglected aspect: expenditure management.
His first attempt, the unshackling of the fertilizer subsidy announced in July’s budget, failed to make any headway. However, the minister is expected to revisit the theme within the framework recommended by the 13th Finance Commission (TFC). From all indications, the thrust of the strategy is a likely reordering of government spending or, at the least, the listing of new priorities keeping in mind that the private sector is a key part of the Indian economy.
The new priorities may entail the government’s exit from some sectors, which obviously leads to an associated theme: disinvestment.
Mukherjee had in his last budget set out broad contours of the government’s divestment strategy and sought to stay away from specifics; that budget also suspended the rules (for three years) governing the use of the disinvestment proceeds and committed that the money would be used for financing social sector programmes and investments in infrastructure.
The TFC recommendations, expected to argue for a review of the country’s “public capital assets”, are likely to further fine-tune this strategy that will set aside more money for spending on social sector programmes.
All of these reform measures are expected to be sugar-coated with a huge dose of inclusiveness so as to ensure a long-term political appeal to the key constituency of the United Progressive Alliance (UPA).
In the run-up to the Union Budget, Mukherjee has already signalled that the government will be proceeding with its right to food initiative, which entitles every poor family in rural and urban areas to 25kg of rice or wheat per month at the concessional rate of Rs3 per kg. However, this is likely to be linked to a larger reform objective of revamping the existing public distribution system. Like the Mahatma Gandhi National Rural Employment Guarantee Scheme, announced four years ago, the National Food Security Act is expected to provide a crucial political connect to the other India, Bharat.
A similar push is expected in the case of financial sector inclusion. While the Reserve Bank of India has been pushing ahead on its own, the Budget is expected to lend this effort some impetus, while linking it with larger reforms in the financial sector.
As he gets ready to present the first Budget of the decade, the minister can take heart that today’s India (and Bharat) are more amenable to economic reforms, as long as there are tangible benefits associated with these. By emphasizing inclusiveness, the UPA may be seeking to demonstrate that it wants to spread these benefits among large sections of the populace.
Managing the politics of Budget proposals may well free the minister’s hands to focus on preparing the building blocks required to take the economy to its logical next stage of growth.
anil.p@livemint.com
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First Published: Tue, Feb 02 2010. 12 26 AM IST