Opinion: A Budget Meeker Than Expected

(Siddharth Mazumdar is a political analyst and an author living in Mumbai)

A first budget of a new government has two components. Firstly, it must offer an estimation of government expenditure and revenue, the true impact of which will be only known next year when the Finance Minister will present a compliance level of the prediction made today. And secondly, and more importantly, the budget must offer the government's economic vision not just for the coming year but also for the remainder of its term.

Arun Jaitley's first budget, also the first in a quarter century being presented by a government which enjoys a simple majority, had raised expectations to unimaginable levels. The budget had to rise to the challenge of presenting the government's plan for how 'Acche Din' can be move from a poll promise to an economic reality.

A large section of economic experts thought that devoid of any coalition pressure, the budget would be a can full of bitter pills which the Prime Minster Modi had famously talked about.

The Finance Minister seems to have met just little over half their expectations. While the government has committed to a fiscal deficit target of 4.1 per cent of GDP, a target set by the previous UPA government, by 2015 it expects this figure to come down to 3.6 per cent of GDP by 2016. These targets definitely demonstrate the government's commitment to reduce wasteful expenditure but it could have used its unprecedented mandate to display an even stronger commitment to fiscal prudence by symbolically lowering the 4.1 per cent target for the coming financial year. To put things in perspective, even by lowering the fiscal deficit by 0.1 per cent, the government saves approximately $1 billion (little over Rs 6,000 crore).

Achieving this would have meant administering extremely bitter pills. Options included a drastic cut in several unproductive social sector schemes, pursuing disinvestment on a war footing ( at least three times more than the current target of Rs 39,000 crore) and complete rationalisation of the fuel and fertilizer subsidy - a large part of which doesn't even show up in the budget statement due to statistical illusions. The government could have at least made a statistical correction to make this more transparent by bringing it within the budget statement. Surprisingly the government chose to announce several '100 crore' pilot schemes and has left lot of the welfare policies, of the UPA era which it criticized, untouched.

Public sentiment and a variety of political reasons may have forced the government's timid response but nonetheless, there is one clear positive message from this budget- that the state doesn't want to alienate the private sector - large and small firms - in reigniting the India growth story.

The announcement of small but structurally significant policy changes reaffirm this message. The budget paves the way for foreign investment in the crucial sectors of defence and insurance which can have a multiplier effect on job creation and productivity. The government has increased allocations to dramatically improve the country's physical infrastructure that will help promote economic activity and announced an innovative Rs 10,000 crore fund to charge India's entrepreneurial spirit.

The finance minister's intent of making the tax regime simple and collaborative rather than complex and confrontational is an extremely welcome step.

In a nut shell the budget does make an attempt to establish an economic framework that is inspired by the East Asian miracle of the last century, something which has always impressed the Prime Minster.

The focus on infrastructure, manufacturing and savings the budget does incentivize savings in bank deposits and provident funds) are some of the clear take-aways. The government had the mandate to give us a path breaking vision for the economy but choose to deliver only a progressive budget.

Realistically, it will take the government as many as three years to achieve a stable 8 per cent growth rate. A double digit target by the end of tenure would have been extremely reassuring. The government has made the right noises and has taken a few baby steps to revive the economy's 'animal spirits'. Hopefully next year it will sprint!

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