Home / Budget / Opinion /  This could well be the ’91 moment for the NDA Government

Finding purpose is a core tenet learnt from Gandhiji’s life. Finance minister Nirmala Sitharaman has done just that in presenting the Union budget. Her confidence in finding the means is what this exercise was all about.

Turning points are important to identify for investors and corporate leaders, and I dare say this is one such point where a definitive and, more importantly, a credible transition has been attempted by the government. She has achieved the remarkable feat of demonstrating the resolve to push second-generation reforms, fund growth and capital formation through debt without additional resource generation from higher taxation, while remaining on a defined, credible fiscal glide path.

But the bigger picture is more heartening. Perhaps for the first time, we can confidently say that is a 1991 moment and the NDA government, having missed many opportunities since 2014, has made three key fundamental changes to India’s economic trajectory: no accounting sleight of hand in presenting the financials, a definitive capital formation path and acknowledging that alternative means of non-tax financing of deficits is far more productive in releasing the oft misused animal entrepreneurial spirits of its citizens and attracting investors in the context of a transparent, non-interventionist tax regime.

Towards that end, the proposals for large-scale asset monetization (railways, National Highways Authority of India, pipelines, land), privatization (not mere divestment) of two public sector banks and of PSUs, and large debt mobilization are revolutionary, to say the least.

Of course, several of these moves will come under strident scrutiny of opposition parties and, given the current level of trust deficit, the government will do well to form an institutional mechanism to transparently execute the asset monetization programme.

It has rightly proposed to funnel the proceeds towards a large capital outlay programme to create a virtuous cycle of productive use of such funds and must be careful to not allow historical legacies of leakage into revenue expenditure.

With such a large government push towards capital outlays, the private capital investment cycle, too, will get the much-needed impetus. This will provide the necessary fundamental transformation in reducing our excessive dependence on consumption growth to investment growth. This is crucial to our overall economic trajectory, as well as from job creation imperatives and consequent demand creation, and societal balance.

The reforms agenda has tackled crucial aspects in which the can has been kicked down the road for too long by successive dispensations. Apart from asset monetization and privatization, the formation of a virtual bad bank to tackle non-performing assets (NPAs) has finally been taken. The model of a distressed asset and special situations fund, through a transparent aggregation and valuation platform, will incentivize both bankers and investors without distorting government finances and creating moral hazards in the process of cleaning up the unending baggage of legacy in our banking system.

If this is matched by a genuine commitment to unshackling the PSU banks from the clutches of North Block and the investigative agencies, while simultaneously inculcating market-driven HR systems of attracting, retaining and incentivizing talent, we could well be on our way to resolving the key millstone around our neck of a troubled financial sector.

The execution challenges will be huge and, as we have seen over many years, significant reforms take time, fortitude and humility to implement. Taking a leaf from former prime ministers Atal Bihari Vajpayee and P.V. Narasimha Rao will be useful for this government instead of the usual confrontationist stance with those having genuine opposing viewpoints.

I am confident this time it will have broad support from most sections of society as it has been laid in Parliament and will provide enough scope for discussion and driving consensus.

Being a debt-funded budget with gross borrowing of a massive 12 trillion, the RBI’s role will be critical in managing yields, higher cost of capital and the potential inflationary impact. Most importantly, we do not have the luxury to fail as the debt component is high—the combination of deftly managing this balance will be critical to our financial future.

This could very well be Nirmala Sitharaman’s opportunity to be remembered with the likes of Margaret Thatcher or Manmohan Singh, who transformed their economies in a fundamental way under very difficult circumstances.

Aristotle explained more than 2,000 years ago the concepts of “techne" (craft), “episteme" (science) and “phronesis" (ethical judgement) as the three distinct types of contrasting knowledge skills required to solve the most complex problems. The finance minister has demonstrated the latter as a capital allocator and policymaker: ethical judgement, perspective and wisdom required when competing factors are at play, multiple options are possible and the answer is not absolute.

For our sake, I hope she is proven right with the benefit of hindsight and the judgement of posterity.

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