BackBudget not growth-oriented
The need to contain fiscal deficit arises from ensuring we don’t bankrupt the country for our future generations
Premium(Mint)
The 2013-14 budget needed to tackle a variety of challenges being faced by the Indian economy. The need was to address depressed levels of growth by reviving investments, providing for a social net to make the economy more inclusive; all of this while keeping in check a high fiscal deficit.
Finance minister P. Chidambaram has made the right noises on increasing social expenditure to the marginalized sections of women and children, while trying to encourage investments through policy debottlenecking and all along keeping to a strict fiscal regime. Much of the outcome remains to be seen.
The second tenure of the Congress-led United Progressive Alliance (UPA) has been vilified as scam-ridden where the rich have become richer and the poor face galloping inflation despite the government’s projection of itself as an aam aadmi (common man) government. The minister’s decision to levy a surcharge of 10% on the super rich and the levies on luxury items is an attempt to correct this and reinforce the Congress’s image as an aam aadmi party. No substantial revenue generation is expected to arise out of this. It may have been more prudent in this environment of stagnation to allow companies to invest that profit and create more jobs.
The need to contain fiscal deficit arises from ensuring we don’t bankrupt the country for our future generations. This has been challenged by the UPA’s desire to ensure adequate provisions for social spending with a view to the forthcoming election. Chidambaram attempts to keep both sides happy, but his budget is fraught with the danger of not being able to harness sufficient resources. This will either reduce the social spending or lead to higher fiscal deficit. However, the size of the current account deficit continues to be a cause for worry. Failure to manage the current account deficit can have a cascading effect on the rupee, which will consequently affect the sense of security on external borrowings and foreign investments.
Whether the attempt to streamline protocols will lead to increased foreign investment needs to be seen. A comprehensive look at the infrastructure sector such as making available coal, a regulator for the road sector and the increased thrust of the cabinet committee on investment can lead to higher investments, but the results will depend upon the relevant ministries following through with action.
Although significant noises have been made to streamline policies in the energy sector (through a new shale gas exploration policy, financial restructuring of power distributors), the impact on the economy is bound to be negligible unless significant structural changes are made in these sectors. The final impact of such budgetary proposals depends on the efficacy in implementation of policy changes; this constitutes the real challenge.
Chidambaram can lead the way with a push for the implementation of the goods and services tax and the efforts made towards simplification of tax laws. The 15% investment allowance is bound to spur investment, but only in high-value investments that exceed ₹ 100 crore. There are few proposals to increase and incentivize investments in the small and medium enterprises sector, which are the major job creators.
One of the most positive features of the 2013-14 budget is the thrust given to women’s empowerment. Initiatives like the Nirbhaya fund, the women’s bank and the substantial size of the gender budget will beneficially impact urban and rural women, who have little access to financial services. After a long fight, the gender budgeters seem to have made an impression. The mention of the mother and girl child leads to hope that the fairer sex can finally have their fair share of the budget.
Budgetary proposals for the agriculture sector have been disappointing. The push for greater crop diversification and talk of another Green Revolution in eastern India remains unconvincing. Thrust on irrigation remains absent, though the increase in farmer credit could possibly compensate in the long term. The little effort to address supply-side constraints facing the agricultural sector like improving farmer-market linkages and developing infrastructural capabilities like godowns, cold storage units, etc., will not yield the desired outcome and food inflation will remain high. The middle class, who have had no tax relief in the name of austerity, will continue to battle unreal food and consumer inflation.
The increase of 31% and 17%, respectively, in expenditure allotments to the ministries of health and family welfare and human resources development, amount to a mere 1% of India’s gross domestic product (GDP). This percentage is much lower than the UPA’s 2004 pre-election promise to allot 9% of GDP for education and health by 2009. Such abysmal allocation will also impact the employability of our youth.
Despite the focus on vocational training and the incentives given in the skill development arena, there has been little thrust on increasing employment opportunities and enabling job acquisition. The underlying growth and incentives for job creation remain unaddressed. The fear that India’s youth, which are the country’s main assets, will become its biggest liability is looming large.
On the whole, the finance minister has tried to balance his books while not compromising his political compulsions, but has failed to give what one expected of him, a creative, reformist, growth-oriented budget, which would have laid the solid foundation we need to meet future challenges.
Biju Janata Dal’ s Kalikesh Narayan Singh Deo is a member of Parliament
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