By: Yoginder K. Alagh
As Arun Jaitley made his budget speech, it was clear the NDA is facing a trilemma. It has to keep prices under control, the exchange rate favourable and also get the economy on to a high-growth path. The government is attempting to do this with many small initiatives, which may have wide impact.
Some of these are interconnected. Take urbanisation. The 100 smart satellite cities project is getting more than Rs 7,000 crore. At the same time, real estate investment trusts, which are vehicles for pooled real estate investment, are being incentivised. And the Shyama Prasad Mukherji Urban Mission is to be launched. We have shown that the big population movements are from large villages to towns, as farmers chase the rising demand for a diversified food basket thanks to higher growth. The inflation we have witnessed is mainly in food and energy. This is because the income elasticity of demand for non-grain items is between one and two. So, if the economy grows at 6 per cent, demand will rise by more than 10 per cent. But no where can agriculture grow at such a high rate. The more we concentrate on this, the better off we will be in the long term. And if we also focus on the issues of storage and markets, which the budget does, we will have a semblance of a strategy.
But there are other aspects as well. Producers’ organisations were allocated Rs 200 crore. Sticking with the theme, the FM has also allocated money for the development of markets and warehouses. It would have been better had he presented them in an interconnected manner. The budget statement on the national adaptation fund to cope with climate change is fascinating. I have shown rising gas prices lead to an increase in the usage of kerosene and coal for cooking in towns and cutting of trees in forests. The usage of nuclear and hydel power, and energy saving technologies, as well as the creation of a gas grid, which Jaitley mentioned almost in passing, are already delayed.
The budget’s resource-raising effort was also annoyingly detailed. At the beginning of his speech, the FM talked of reform. But he detailed the large number of important steps in a series of random statements. If the budget is “anti-inflation”, we don’t quite know why. It has been suggested that price rise will be controlled. But in practical terms, the fiscal contraction has been baldly stated and explained. Maybe there is over-reliance on the bureaucratic Essential Commodities Act. Also, the scheme of contra-cyclical agricultural purchase and sales is faulty since governments are notoriously inefficient traders and tend to play into the hands of agile market players and speculators. The budget has the stimulus I wanted, though some expenditure tweaking could be done. It’s not just about aggregate demand but sending the right signal to stagnating sectors.
The writer is chancellor, Central University of Gujarat