At the traditional meeting of the finance minister with economists, I addressed the issue of how the budget should be assessed once it is delivered. I suggested a simple yardstick — if at the end of the budget presentation, there was even a single person comparing the BJP-Modi-Jaitley budget to the UPA budgets, the FM should consider himself to have failed. So how did the FM perform? To be sure, there were the Congress apologists and prisoners of “political opposition” who felt compelled to say this was a bad budget. From my vantage point, the fact that the opposition to the budget was fatuous is further proof that this maiden Narendra Modi budget was path-breaking and pro-growth in many respects.
However, I must mention that at the end of the first 45 minutes or so of the speech, I did comment: “What is the difference between the BJP and the Congress?” There was the usual laundry list of items to be done, the usual cookbook approach to the harnessing of ingredients — Rs 100 crore of coriander added to Rs 300 crore of rice, etc. A recommendation to Jaitley, and one I have been making (without any success) to every FM for the last 20 years: please don’t mention anything in the budget speech unless its value is more than Rs 1,000 crore; and please adjust it for twice the inflation rate for the next 10 years.
The difference between Jaitley’s budget and the UPA budgets is not in the presentation (bad in both), but in content. The BJP budget talks about investment, and how the investments necessary for enhanced growth will be financed, how the cost of this financing has to be, and will be, substantially reduced, for example, no CRR and SLR requirements for infrastructure investments. The UPA budgets, in contrast, talked about how, by giving rights to all, of all kinds, including happiness, they would end up by delivering everyone misery. That is the difference between Modi-Jaitley and Sonia Gamdhi-UPA — and vive la différence!
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Now for the good news, organised according to the wish list of many.
On retrospective tax, promise of no future misbehaviour but lack of clarity on what to do about tax crimes already committed by the (previous) government. If the spirit of this budget is taken, and indications taken from promises about the future, then the grade is 8/10. But objectively, 5/10.
On fiscal consolidation, there is only a promise to overhaul the inherited, bad subsidy regime. The FM said: “I also propose to overhaul the subsidy regime, including food and petroleum subsidies, and make it more targeted while providing full protection to the marginalised, poor and SC/ STs. A new urea policy would also be formulated.” If the comments on NREGA are taken in conjunction with the above comment (that is, “wage employment would be provided under MGNREGA through works that are more productive, asset-creating and substantially linked to agriculture and allied activities”), there is a distinct message here — the old subsidy regime will go, replaced by more targeted (read Aadhaar) allocations. Score: 7/10.
On social programmes, no Indian budget has talked so much about clean water, rivers, sanitation and toilets. In addition, there is considerable emphasis on the empowerment of women, enhancement of girl-child programmes, concern about the sex ratio (killing of the girl child), and safety of women. The concern is well founded and expressed, and strong intent of policy is discernible. No hesitation in concluding that on this much-neglected social sector, the government needs to act much more, and likely will. Score: 8/10.
On capital markets, investment and growth, one of the strongest components of Budget 2014-15. There is 49 per cent FDI in insurance and defence, and increased incentives for investment in real estate and infrastructure. And there is concern and budget provision for the recapitalisation of banks. Oh yes — and Indians can now manage foreign portfolio investments based in India. Such a combination of policies for growth was rarely (strike that — never) seen in the UPA budgets of the last 10 years. Score: 9/10.
On decentralisation and power to the states, Modi, during his campaign speeches as well as his time as chief minister of Gujarat, constantly reiterated the importance of decentralisation, that is, power to the states. While the budget speech is silent on this point, a perusal of the budget expenditure figures show that for the large plan expenditure component (approximately 5 per cent of GDP), there has been a complete reversal of trend. In 2013-14, state plans constituted 25 per cent of this total; in 2014-15, states will handle nearly 60 per cent of the total! Score: 10/10.
Finally, the fiscal deficit. Oops, I almost forgot. Somewhat surprisingly, the FM has stuck to the target of 4.1 per cent of GDP for 2014-15, rather than the widely expected 4.5 per cent. As readers of No Proof Required know, I am not a big fan of the lazy economist’s approach to macro-economics — previously it used to be “Look at the rate of growth of Money Supply”, and now it is “What size is your fiscal deficit?” Thankfully, Jaitley substitutes thinking for blind regurgitation and solves his low growth, drought-infested 2014-15 deficit problem by selling government assets; for the future, there is the “roadmap for fiscal consolidation is a fiscal deficit of 3.6 per cent for 2015-16 and 3 per cent for 2016-17”. The lower deficits will come about through (finally) the implementation of the GST, and higher growth. Score: 10/10.
No matter how you slice it, Budget 2014-15 (but not the long “everything and don’t forget the kitchen sink” speech) is one of the best content budgets of the last two decades. One will have to wait till the February budget (2015-16) to see if the Modi-Jaitley budget will be remembered as second only (or equal to) the Narasimha Rao-Manmohan Singh budget of 1991.
The writer is chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin, a leading financial information company