New Delhi: Instead of the single overarching economic document that was the norm in the past, this is the budget for the India of 2017, where finance minister Arun Jaitley has used the forum for making selective interventions where needed without meddling into areas that don’t need it.
In tone and tenor, Budget 2017 is obviously aimed at the most vulnerable sections of the population, in rural as well as in urban areas. It provides tax breaks to the least-paid segment of the working population but more significantly, it lays out a series of steps that should incentivise the creation of markets that can provide the goods and services the marginal segments of the population need.
Affordable housing, for instance, is no longer largesse from a benevolent government. By focusing on the supply side of the chain, the finance minister has converted it into a marketable product. That’s what a modern economy needs—not doles and freebies but mechanisms to enable all wage earners to buy goods and services at affordable rates. The approach will also effectively stoke demand.
It is a different route to growth, one that sets at rest another of the false expectations from budgets—that in some magical way, it can stimulate moribund private investment. In his introductory remarks, the finance minister did outline promoting “higher investment” among his key goals.
Sure, capital investment has always been considered extremely important for the long-run growth of any modern economy. But current capacity utilization across sectors in India is around 67%. This means that there is substantial spare capacity and any move to artificially force investments into the system will lead to the kind of capital inefficiency that has brought China to its knees. Of course, as per the budget, overall capital expenditure is up 25.4% but most of that should be on infrastructure to support the theme of bringing the markets to the under-served.
As shown by the abolition of the foreign investment promotion board, along with the promise of further liberalization of the foreign direct investment policy, this may be the first few steps in this government’s promise to minimize its role in the economy.