Why this budget is almost a miracle and not a mirage

By: Pathikrit Payne
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There must be something impressive about Modi Government's maiden budget that the BSE Sensex did not spiral downward as heavily as has been the tradition for several years now, and instead ended flat.

The anticipations from this year's budget was sky high even as there were also deep apprehensions as well that given the precarious condition of the economy, a worsening fiscal situation and issues of bad monsoon or Iraq crisis may force the government to take drastic steps of raising tax rates and reducing subsidies thereby putting more burden on both the industry and the common man.

The balancing act against all odds

But against all odds, NDA's Finance Minister Arun Jaitely, like the benevolent Santa Claus has been able to create not just a positive sentiment but has been able to reasonably make every quarter happy. Be it, the common man, the investors, the industry or the social sector, this budget, even if not promising the moon with a magic wand, has been able to make bring some relief, a sense of new optimism and a smile in the face of almost everyone.

For a stagnating economy crippled with huge fiscal deficit, years of policy paralysis and a defiant inflationary level, the challenge was always to contain fiscal deficit even while increasing the level of investments and take some bold policy decisions to booster investors' confidence.

Major policy announcements to restore investor confidence

On the issue of economic reforms, Jaitley started with the big bang announcement of raising the level of FDI in defence and Insurance to 49% from the present level of 26%, a long standing demand of the insurance sector starving for more capital infusion, as well as that of the Indian defence sector.

In spite of all its potential, India has failed to create a viable defense industrial base in the country because of lopsided policies and blind dependence on the ubiquitous defense PSU who never made real time efforts to usher in self reliance in defence sector. In both cases, it is expected that the policy announcement would result in the streaming in of more investments in both the sectors.

Bold and beautiful- Killing the retrospective tax fear

Jaitley followed this with a bold move to state that retrospective taxation policy would be revoked. This was perhaps the single biggest concern in the minds of investors and brought in major relief to both existing and prospective investors who were hounded by the fear of the continuation of retrospective taxation regime. This single critical decision has perhaps taken away the biggest impediment created over the last few years and which acted against the development of a seamless investment environment.

Focus on Infrastructure to revive the economy

Riding on the back of major investments to be done by the PSUs (to the tune of Rs 247,000 crore), Jaitley announced a slew of other decisions to boost the economy by pledge of massive investments in infrastructure which are expected to play the role of a catalyst in kick starting the economy.

This includes an astounding allocation of Rs 37,880 crore for the construction of 8500 km of additional national highways during the current financial year and Rs 14,389 crore allocated for rural road construction under the ‘Pradhan Mantri Gram Sadak Yojana'. This was followed by the decision to raise the corpus of the Rural Infrastructure Development Fund to Rs 25,000 crore from Rs 5,000 allocated in the interim budget.

Further, Jaitley pledged to kick start the construction of additional 15,000 km of gas pipelines in the country to complement the existing 15,000 km that India has and stated that this would be done through the Public Private Partnership or PPP model.

Focus on Inland Water Navigation

For the first time, efforts have also been made through this budget to prioritize inland water navigation in India whose whole potential India have systematically failed to leverage in spite of being a nation of rivers. The decision to create a ‘Jal Vikas Marg' on river Ganga from Allahabad to Hoogly and the allocation of Rs 4200 crore for the same is an extremely positive step. The Finance Minister also announced the development of an additional 16 ports and allocated Rs 11365 crore for the development of the Tuticorin port.

Focus on creation of 100 new satellite townships

This apart, Rs 7000 crore has been allocated for the development of 100 smart cities as satellite town of larger cities which is a dream project of Narendra Modi, in addition to major impetus being given to low cost housing. A key aspect of this budget is the quest to continue with massive capital investments in infrastructure projects even while containing fiscal deficit thereby having more reliance on PPP model wherein a substantial amount of investments are brought in by the private sector in public utilities.

Stressing on the PPP model and SEZs

Stating that an astounding 900 projects under the PPP mode are under various stages of development, Jaitely announced a corpus of Rs 450 crore for the development of an institution to provide support to ‘mainstreaming PPPs'.

Also, the decision of the Government to revive the Special Economic Zone (SEZ) concept as an effective instrument of industrial production vindicates the amount of trust that Modi Government is putting in on private investments for industrial production, economic growth and export promotion even as the Government focuses on investing its own resources in development of physical infrastructure. Nothing can be a better win-win situation than this. In fact the Chinse example of massive success with SEZs is there for India to emulate,

Focus on development of Industrial Clusters

Apart from the decision to create textile mega-clusters at Varanasi and another six at other places in addition to the proposal to create 20 new industrial corridors along the proposed Bengaluru Mumbai Industrial Corridor and Vizag-Chennai Industrial Corridor, one of the most vibrant factors of this budget is the emphasis given on skill development and supporting the entrepreneurship culture through venture capital funding.

Focus of development of skills

The proposal to create a national mission for skill development namely Skill India for imparting skills for more employability and instilling the culture of entrepreneurship both in new and emerging professions as well as traditional professions is a welcome step. Lack of skill continues to be the single most important reason lack of employment in the country and the fact this has been addressed is a welcome step.

Linked to that, the decision to create a Rs 10,000 crore fund to act as catalyst ‘to attract private capital by way of providing equity, quasi-equity, soft loans and other risk capital for start-up companies in MSME sector is a welcome step.

The Finance Minister was candid in stating that Government cannot continue to keep spending beyond its means and that one cannot leave behind a legacy of debt for future generations, a clear indication that NDA is in no mood to continue with mindless populism of UPA and eventually subsidies would be more targeted instead of becoming an appease-all policy.

However, social sector has not been neglected

However, in spite of the stiff financial condition, Jaitley did not compromise with the social commitments. While a whopping Rs 50, 548 crore have been provided for the Scheduled Caste Plan, another Rs 32,387 crore has been allocated for Tribal Sub Plan.

This apart, continuing the with the stress on primary education, Rs 28,6535 crore was provided for Sarva Shiksha Abhiyan and Rs 4966 crore for Rashtriya madhyamik shiksha Abhiyan. Jaitley pledged to continue with the rural employment guarantee scheme but making it clear that henceforth it would be linked to asset creation and agricultural work, a positive step to reduce mindless and myopic doling out of money in the name of employment generation, which had become the hallmark of MNREGA.

Considerable stress has also been given to defence by allocation of Rs 2,29,000 crore and increase in allocation for border infrastructure development and state police reforms, jaitley has also made sure that the middle class is kept in good humor.

Keeping the middle class in good humor

Apart from raising the exemption limits of taxable income from Rs 2 lakh to Rs 2.5 lakh ( Rs 3 lakh for senior citizens), increasing the investment limits under Section 80C to Rs 1.5 lakh from present Rs 1 lakh and the deductions on interest on housing loans has been raised from Rs 1.5 lakh to Rs 2 lakh. Each of these is invariably going to make the salaried class reasonably satisfied if not elated.

Results would take time but would definitely be positive

The best thing about this budget is that there is something in it for everyone. However one has to be patient to witness the positive impacts of the announcements. Following the Keynesian Model of capital investment induced economic growth model does take time to deliver but once it delivers the results the extremely impressive. The best example of the same was the National Highway Development Programme or NHDP by the Vajpayee Government,

The impact of the Golden Quadrilateral Project during the Vajpayee regime in terms of boosting demand of several core sector items in addition to increasing employment and efficiency of the economy through seamless and world class road connectivity cannot be denied. Modi Government is precisely trying to do that with even bigger investments in roads, ports, airports, special economic zones and industrial clusters. India needed this infrastructure push to both revive the economy and create the platform to take the economy to the next league.

This was more than a mere budget- This was a reflection of positive intent

If one looks at the Rail and the union Budget in totality, Modi is following the right trend of massive capital investments on infrastructure while containing if not cutting down on subsidies for the time being, and doing away with the systemic bottlenecks that inhibit investments by private sector in manufacturing and services.

The anticipation is that a renewed effort to invest in capital asset creation and removing infrastructural and policy bottlenecks would kick start massive economic activities leading to higher economic growth, employment generation and resultant increase in tax collection which in turn would bring down fiscal deficit.

Very little to complain- One can only cheer this budget

If all goes well, the seeds of a resurgent India have been sown. How the nation reaps it would depend how well it is nurtured and cultivated. One may say that this was an interim budget of the NDA Government more policy measures and bolder steps possibly to be announced in the next budget.

From the perspective of presenting an impressive budget in extremely demanding situation, one cannot deny that Team Modi has started on a positive note. As BJP leader Sanjay Kaul puts it, ‘This budget deserves praise. It is the most decent garment that could have been made out of the tatters that the UPA left us.' This says it all.

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