OPEN APP
Home >Budget >Opinion >Detractors will whine but this is a spectacular budget
Photo: iStock
Photo: iStock

Detractors will whine but this is a spectacular budget

It has combined fiscal mega expansion with some creative ideas to deliver beyond our expectations

A full chapter in the Economic Survey was devoted to rebutting, if not debunking, the models of international rating agencies. This is because India has always got a raw deal when it comes to its own sovereign rating.

Despite a record of zero defaults, it routinely gets a lower rating than countries that have a history of several defaults. Furthermore, India is very different from its east and south East Asian peers in that it has almost always run a current account deficit, and yet it has had a positive balance of payments. The shortage of dollars on its current account is more than made up by the confidence of foreign investors, who have been happily investing through the foreign direct investment route or through stock markets for the past three decades. Today, India has among the top four piles of foreign exchange in the world. If rating agencies are so downbeat on India, what explains the confidence of these dollar investors? That chapter in the Economic Survey exhorts policymakers to ignore the rating agency sourpusses, and recalls the poem of Rabindranath Tagore, to boldly go where the mind is without fear. Not quite what the old poet thought, but finance minister Nirmala Sitharaman decided to go boldly and fearlessly into the land of fiscal mega expansion. One cannot call it adventurism, because in these pandemic times, most of India’s peers have debt to gross domestic product (GDP) ratios exceeding 100%, much higher than India’s. Also, the world is awash with liquidity and most Western nations have negative interest rates on their sovereign bonds. Sovereign wealth funds as well as rich-country pension funds are eager for higher returns. What better place to do so than in India, which has a young demographic profile and high growth potential? The finance ministers’ landmark budget makes it easy for such foreign funds to come into India and fund its burgeoning infrastructure needs.

The big theme of the budget is an infrastructure push, even pushing the fiscal deficit to 6.8% of GDP, more than twice what is allowed by the Fiscal Responsibility and Budget Management Act. And it promises to come down to 4.5% only after four years. This gives the budget numbers a great sense of credibility and realism. It has also been transparent and avoided hiding the real deficit in the books of some government companies. For this alone, the finance minister needs to be commended, for it builds and strengthens that precious thing called trust between the government and taxpayers (i.e. all of us). With seed funding for a brand new development finance institution, and infrastructure spending of several trillion rupees a year can surely crowd-in, not crowd-out, private investment. Alongside the infrastructure push has come a creative asset monetization plan, such as of toll roads belonging to the National Highway Authority of India. Even if half the annual targets of the National Infrastructure Pipeline are realized, it will be a game changer for the Indian economy. Also, funding long-lived infrastructure assets with long-term borrowing is the right thing to do. That’s because these assets will be enjoyed by future unborn generations, so such borrowing is a way of taxing those unborn taxpayers.

Along with infrastructure spending and financing ideas, there were big announcements on privatizing two public sector banks and one general insurance company. This reveals boldness and conviction. It was a minister of the National Democratic Alliance who 20 years ago announced on the floor of Parliament a decision to bring down the government’s stake in public sector banks to below 33%. It has taken long, but it is good to see that promise being redeemed. The overall philosophy, as was also articulated and reiterated by the Niti Aayog, is to get out of all non-strategic sectors, and let private sector players operate in that space. This can release capital to be deployed for more productive uses, and let the government focus its energies and resources on strategic sectors and delivering public goods. The budget goes a long way in taking visible actions in pursuance of that philosophy. It is rare in Indian polity to see privatization backed by conviction. Even otherwise, it is not an easy journey, and one hopes that the government will walk the talk in the coming days.

The government seems to have cleverly backloaded its heavy fiscal expansion, waiting for the lockdown to end. This strategy is likely to see a better pay-off, and economic indicators such as GST collections, freight movements, readings of India’s purchasing managers’ index and industrial production are all moving in the right direction.

There were some apprehensions that extra fiscal spending would be accompanied by new taxes, and maybe some extra socking of the rich. That has been avoided. This was one of the sources of relief for stock markets, which were in a jubilant frenzy. Of course, some cess has gone up, as also import duties. The upward trend of import duties, and consequently more protectionism, should be curtailed. That’s because Atmanirbhar Bharat is also about having aatmavishwas, or self-belief, undeterred by global competition. Prime Minister Narendra Modi himself underscored this point in his Davos speech this year. For now, though, the country is a winner, and kudos to the finance minister for a spectacular budget. Detractors will cry about missed opportunities. But let that not take attention away from the genuinely positive aspects on which it delivered.

Ajit Ranade is chief economist at Aditya Birla Group.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.

Close
×
Edit Profile
My ReadsRedeem a Gift CardLogout