Budget 2016: Mostly positive, but…

Merely providing more money to a sector does not ensure higher growth, or better services.

Written by RC Bhargava | Published:March 1, 2016 2:46 am
budget, budget 2016, union budget, india 2016 budget, india budget 2016, budget news, union budget 2016, budget today, budget this year, 2016 budget, 2016 union budget, india budget, india news inance minister Arun Jaitley arrives at Parliament house to present the union budget in New Delhi, on Feb 29th 2016. (Express Photo by Ravi Kanojia)

The presented Budget mostly has positives. The biggest perhaps is the finance minister Arun Jaitley keeping the fiscal deficit target for 2016-17 at 3.5 per cent, despite many calls for relaxing this in the interests of higher growth. However, merely providing more money to a sector does not ensure higher growth, or better services. The ability to spend money efficiently, and in a manner that ensures that work is done according to schedule, without cost overruns and is of good quality, is more important. Regrettably, that cannot be assumed in the context of all past experience and hence the finance minister’s prudent approach is absolutely correct.

The greater emphasis on improving rural incomes to the extent of doubling them in five years, improving rural infrastructure including irrigation facilities and roads, improving access to the market and processing of farm produce are all well thought out actions. This sector is within the jurisdiction of the states, and success will only come if the Centre can carry the states with it, and persuade them for timely implementation of works. Here again, past experience indicates the need for changes in systems for motivating civil servants to become more result oriented.

The proposals in the infrastructure area are good as it is generally agreed that the trigger to start the investment cycle has to come from government spending on basic infrastructure construction. There is also no doubt that the PPP model needs to be revitalised and the dispute resolution mechanism is sorely required. The proposed changes in the Motor Vehicles Act to facilitate passenger movement are welcome, but why not extend them to the movement of goods also? That would help make manufacturing more competitive.

Improving the quality of life of those below the poverty line is essential and the steps proposed are welcome, as is the intention to raise the quality of some higher education institutions. As a person associated with this area, I can say that the need to make such institutions financially independent of government cannot be over emphasised.

The proposals for strengthening PSBs are good, though there are doubts as to whether the provision of Rs 25,000 crore would be adequate. More important is how such situations can be prevented in the future, and not only in the next few years but on a permanent basis. As long as banks remain under political control, the possibility of things going wrong cannot be ruled out.

The dis-investment policy needs to be reviewed. Larger funds, if available, could be used for infrastructure and social services. The sale of PSUs could realise large amounts of money. Private funds would come in, whereas they would not in infrastructure and social services. This would probably also ensure greater efficiency and better services, especially if competition was ensured. Surely people would gain more if PSU sales could lead to faster growth and more jobs. The implementation of the reduction of corporate tax to 25 per cent seems to have moved too slowly. Larger firms have been left out and if some exemptions are withdrawn, may end up paying higher taxes. That does not seem to have been the intention when the reduction in rates was announced last year.

Finally, the infra cess on cars is hard to justify. The industry is struggling to maintain some growth. It has now to invest to ensure that Euro 6 standards are implemented by 2020 as mandated by the Centre. According to the IIT Kanpur study, cars contribute only 2 per cent of the PM 2.5 load in Delhi. Cars, contrary to popular perception, are not the cause of Delhi’s poor air quality. They create large number of jobs downstream. Is it correct to load the industry with this cess at this point of time?

Bhargava is Chairman, Maruti Suzuki India

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