From hope to reality

If the presentation of the budget were better, most experts would not be missing the big ideas for the small trees.

Written by Surjit S Bhalla | Published:July 11, 2014 2:37 am
No matter how you slice it, Budget 2014-15 is one of the best content budgets of the last two decades. No matter how you slice it, Budget 2014-15 is one of the best content budgets of the last two decades.

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!

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

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  1. K
    Karn
    Jul 13, 2014 at 6:49 pm
    If GST in the UPAs form was acceptable to everyone there would have been no need to negotiate like Jaitley is doing now on the oil excise for. The GST format that the UPA tried to introduce was not acceptable to a lot of states . It's cute when Chidambaram tries to blame Modi and Shivraj for blocking it.
    Reply
    1. K
      Karn
      Jul 11, 2014 at 10:04 pm
      The GST was opposed because it took too much away from the center . At least know the issue before writing .. Or is reading too hard?
      Reply
      1. S
        SSM
        Jul 11, 2014 at 4:38 am
        Am glad the budget meets with the approval of Mr. Bhalla who is an objective and knowledgable commenter.
        Reply
        1. G
          Girish
          Jul 11, 2014 at 9:37 am
          he's an unabashed fan, the writer, and it shows.can't argue with that. let him have his jubilation.
          Reply
          1. g
            gunse007
            Jul 11, 2014 at 3:18 pm
            so you rather have the country fail and bankrupt than hope it succeeds just because its being led by people that you dont like ???come on....regardless what, put country first... gov and leaders come and go....
            Reply
            1. J
              Jitendra
              Jul 11, 2014 at 7:01 pm
              What about black money? recovering of loot? money stashed in foreign banks? recovery of over due taxes from corporate? Is this not the way to mobilize resources?
              Reply
              1. N
                NG Boss
                Jul 11, 2014 at 11:55 pm
                This guy Bhalla is a sen speculator. He is singing paean of the budget to attract black money stashed abroad into stock market thru Oxus Investments. Don't be taken in by him.
                Reply
                1. I
                  Iyer Siva
                  Jul 11, 2014 at 8:08 pm
                  Mr. Bhalla is a better commentator on exchange rate mechanism and foreign exchange and stuff like what Dr Rangarajan used to do who made sense about 30 years back. The current problem is the age factor which afflicted Dr Rangarajan and Bhalla is no different. Now Dr R has been given a rest (though a forced one, thanks to the great mandate to BJP), but, however he did his last ditch of heading the panel on" new poverty line calculation' - an absolutely report like the one of Mr. Bhalla's current comment on Budget 2014-15. All of us have a short memory to think on what was said some months earlier....
                  Reply
                  1. S
                    sk
                    Jul 13, 2014 at 3:53 pm
                    Karn, even if it is a hard reading, it does not justify that when in opposition, you block everything. But when in power, you embrace everything. Its not about right or wrong. Its about doublespeak.
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                    1. S
                      sk
                      Jul 11, 2014 at 7:00 am
                      Thanks Surjeet Bhalla, you made us laugh with your jokes to start the day. You adjust your commentary depending on what topic you are writing on. You have did not mention that its the same government which has opposed the GST in MP and Gujarat and FDI in 49% ...or may be your political loyalty does not allow you to accept the double speak of BJP/NDA...but I recall the similarity with past- when in power embrace all the short cuts, including the one provided by your previous regimes. Without power, keep opposing every single good move, create hysteria and do every noise to reach to the power.
                      Reply
                      1. S
                        sk
                        Jul 13, 2014 at 3:57 pm
                        Vikas, this is the hard reality. The same very people opposed GST. Modi has single handedly blocked the GST while he was CM. Now, they already seemed to ran out of any sort of imagination, and embracing it. Same ways Sardar Patel's statue is part of large game plan, which is to build a campaign and run the propaa in support of increasing the height of Sardar Sarovar Dam.
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                        1. C
                          common
                          Jul 11, 2014 at 9:08 pm
                          Budget is a serious matter and unlike the internet writers, the finance minister is an elected representative of the people, both the houses included. Unfortunately, whatever the FM proposes after approval becomes a reality. There is nothing to joke about Rs 10,000 Cr being allotted for new entrants in industries for trying their ideas. In my living memory of 64 years, none has ever attempted such an approach. Nehru used to lecture and Indiraji decided an individual had no role in the country. Rajeev gave his vision. The rest of the Congress leaders surrendered to socialistic ideas from Italy. Can one Congress minister dare enough to even talk like this? I want the nerd writers to seriously read the w budget and also learn what is public administration.
                          Reply
                          1. V
                            vikas
                            Jul 11, 2014 at 6:02 am
                            As you said, the best that they can do is prove them second/equal to Rao-Manmohan. But country was hoping for best of all, as the earlier regime didn't have numbers with them, still could do a lot. May be it is over expectation, but then I am Indian
                            Reply
                            1. H
                              Hari Subramanian
                              Jul 11, 2014 at 4:06 pm
                              One joker after another, the country does not know whether to laugh or cry.
                              Reply
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