Budget fails to make bold policy changes

When tax collections are buoyant, what does an FM constrained from announcing bold policy measures by his coalition partners, do...

When tax collections are buoyant, what does an FM constrained from announcing bold policy measures by his coalition partners, do? Makes bold outlays, encourages consumption demand and hopes investment will take care of itself. That is what this budget seems to have done, missing for yet another time, an opportunity to make bold policy changes. It is with that stroke of resource allocation that the budget sweeps most sectors that actually cry for policy reforms.

Everyone knew that this budget will have an eye on the election. One would have thought that ‘inclusive growth’ would be at the core of policy – including those that have been left out of the growth story, and providing a supply-side fillip that only government can provide. In agriculture what was needed was the encouragement of investment in a range of areas from soil, irrigation, to seeds, fertiliser and marketing. The sector has suffered productivity losses for deteriorating soil quality, aggravated by misuse of subsidised fertiliser. The loan waiver is a short term soothing measure, and insurance is a smaller sop. It is investment that this sector badly needs, to do at least half as well as the other sectors in the economy.

Industry has lesser to complain, what with an across the board excise cut. But this sector also needs an investment fillip. We have built a strong world-class base and now is the time to expand capacity. The policy makers’ silence on infrastructure, labour policy, foreign capital, and investment, an opportunity to actually create resilience against the US slowdown, has been lost. It is left to the industry to fend for itself. The budget however manages to shift the burden of carrying forward the growth story, to the consumers. The reduction in personal tax rates will place more money in the hands of consumers, who will be the growth drivers.

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What the FM has indicated is that this annual exercise is now about how much money the government has and how it plans to spend it. He may not be able to consider the real economy, the supply side factors, the global scenario and our growth rates and extend himself into areas of bold policy. When Dr. Reddy comes up to speak to us on inflation two months from now, he will tell us about the constraints monetary policy has. About how he may not be able to deal with supply side factors in the economy. What we will all do in the meanwhile is worry about how the budget impacts the Sensex and if banking stocks will move up or down from the loan write off. From time to time we will ponder the impact of US recession on the Sensex levels and speculate whether FIIs are in or out.

The budget simply marks the decoupling we seem to have achieved – imagining that the financial sector and the real sector can actually be independent. We extend this argument by assuming that ‘outlays’ will ensure ‘outcomes’. That is perhaps why the budget is so filled with money being allocated to employment, education, health and such core areas that actually need real reforms. We also fret about the Sensex and wonder if the Rs 60,000 crore waiver is good or bad for bank stocks. While the real sectors looking for inclusive growth have been left behind, at least votes from the tax payers and farmers have been solicited.

The writer is MD, Centre for Investment Education and Learning uma.shashikant@ciel.co.in

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