The Union budget of 2014 assumes significance as it would be the first major policy document of the new government. Its first budget is being presented when the coffers are empty, rains are failing and the geopolitical situation is rather grim, impacting oil prices. In such a situation, inflationary pressures are expected to persist, partially because of the long-pending hard decisions that had to be made in the first month of assuming office. The ruling party’s landslide victory is providing a significant goodwill buffer, which should be further utilised to sweep away the Fabian Socialist model of development that had given rise to the licence raj. Therefore, many existing policies need to be reviewed and some more need to be formulated. Indeed, the budget offers a rare opportunity for the government to initiate strong growth-oriented and innovative policies.
The gigantic task of pulling the economy out of the abyss would require larger fiscal resources, which may not be easy in the current year, given the low growth and dismal fisc inherited by the new government. Then the crucial issue is garnering resources for fulfilling the welfare-oriented promises made for the aspiring young India. In this context, the government’s first budget is crucial and it would need to strategise in terms of short- and long-term policy measures, prioritising expenditure in the current budget and raising resources to meet urgent requirements.
First, the budget deficit is already high and fiscal profligacy, though politically justifiable, may not make good economic sense. To undertake policy reforms and new initiatives, some of which were already announced by the ruling party in its manifesto, would require higher outlays. Rather than expanding the fiscal deficit and raising debt, the government should establish the credibility of its intentions by fiscal prudence and consolidation. To begin with, the need is to make fiscal space in the budget by rationalising subsidies, especially food and fuel subsidy, to pave the way for more productive expenditure in the economy.
India needs to urgently address some specific maladies to enhance the welfare of its citizens. Some of these problems, like malnutrition and undernourishment, can be tackled by ensuring the distribution of fortified food, barley, oats, rye, canola oil and flaxseeds through the public distribution system (PDS). To ensure better health, the PDS could be used for the distribution of mosquito nets, malaria and diarrhoea medicines. To encourage sanitation facilities and actively discourage open defecation, a major cause of child mortality, a subsidy for pit and flush toilets can be offered. To encourage higher enrolment and better performance of students, in addition to the mid-day meal scheme, a school breakfast scheme could be considered. To help the nearly 11 crore elderly, the majority of whom are women, universal pension and universal insurance …continued »