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Union Budget 2014 seeks to reboot India

After winning a majority on its own, the BJP has unambiguously initiated a recalibration of the government’s ideology towards the right

The Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) won the 16th general election by tapping the aspirations of young India. After winning a majority on its own, the BJP has, in its first two policy statements—the railway budget and the Union budget—unambiguously initiated a recalibration of the government’s ideology towards the right. Expectedly, this has redefined the unprecedented role accorded to the private sector over the public sector, stopping short of ceding control of state-owned banks; reordered government spending by transferring spending power (and funds) to the states, further reducing the importance of an already marginalized Planning Commission; laid the foundations of a digital economy; and emphasised the creation of jobs, not just in the regular way, but by fostering entrepreneurs.

Clearly, this is a government—emboldened, no doubt, by its 282 seats—that believes the dividends of a market-based economy are far greater than that of the previous socialist model defined by the public sector as the “commanding heights” of the economy. Significantly, missing from the budget lexicon were the usual references of entitlement, though the platitudes about the government’s concern for the less fortunate were omnipresent. It is a strategy the NDA believes will help it effect a rebound in economic growth, revive investor and consumer sentiment and resolve the structural bottlenecks plaguing the economy. The brilliance of Arun Jaitley’s maiden budget speech is that this was achieved without provoking the customary confrontation, especially from the opposition benches occupied by the Congress and the Left parties. The finance minister got away despite committing to higher foreign direct investment in insurance, signalling his intent to prune subsidies and pushing for a record disinvestment of public sector undertakings (although the last is only mentioned in the documents; he steered clear of it in his speech). Rightly or wrongly, this means the market economy will be accorded a more dominant role in the future. The outcome of the elections confirmed that India was ready to make the transition from the entitlement regime put in place by the Congress-led United Progressive Alliance (UPA). Indians were clearly ready to be taught to fish and were no longer satisfied being served the fish. For instance, even while he ensured the allocations to the welfare of people from the scheduled castes, a politically sensitive segment, the minister made it a point to emphasize the ideological shift of the government’s mindset. “To provide credit enhancement facility for young start-up entrepreneurs from scheduled castes, who aspire to be part of the neo middle class, I propose to set aside a sum of Rs.200 crore,” Jaitley said.

In the run-up to the presentation of the Union budget, the NDA signalled its intent to clean up business processes—like setting up a single-window clearance system for big ticket infrastructure projects—and disintermediating governance to eliminate corruption. The ideology of the budget indicates that the NDA proposes to take this to the next level. Politically, it has won over key demographic segments, such as the emerging middle class (including the neo middle class that has emerged in non-metro areas) through a series of measures. For one, it has provided some cash back to the salaried classes as a means of mitigating the debilitating impact of persistent inflation. Second, it has committed to overhaul the ecosystem by promising sanitation to every household by 2019 (also the year of the 17th general election), launched a concerted thrust to ‘rurbanization’ (those parts of India that fall between pure rural and urban areas, also referred to as Census towns) and provided a fresh push to intra-India connectivity. Third, in the package announcing a raft of concessions for various demographic groups, the finance minister dwelled specifically on gender. “Despite increase in air connectivity, air travel is still out of reach of a large number of aspirational Indians. Scheme for development of new airports in Tier I and Tier II cities will be launched,” Jaitley said. Posting his reactions to the budget in customary fashion on the Prime Minister’s Office website, prime minister Narendra Modi said, “This is a budget that converts hopes and aspirations of the people into trust.” A distinct characteristic of the Modi-Jaitley budget is that it has sought to create consensus by proffering IoUs. By passing over on the opportunity to discredit his predecessor, P. Chidambaram, for the fiscal mess he inherited, Jaitley tacitly muted potential criticism from the Congress benches. Similarly, the duo must have won major brownie points with states by effecting a radical reordering of government spending patterns, although much of this was just a continuation of what the UPA did with its interim budget based on a recommendation by the B.K. Chaturvedi committee. This meant that the net resources to states and union territories increased by nearly 50% to Rs.7.9 trillion.

By acknowledging the individual orientation of states, the NDA has cleverly cultivated social capital that can be employed as and when it pushes for the single goods and services tax. If looked at through the conventional prism, then the budget could seem inadequate. The math with which Jaitley claimed he would restrict the fiscal deficit to the target of 4.1% of gross domestic product (laid down by Chidambaram in his interim budget) was clearly dodgy—based as it is on very heightened expectations on tax collections and disinvestment of public sector shares and predictions to restrict expenditure to budgeted limits. Similarly, contrary to expectations, Jaitley did not oblige the galleries by nixing the Vodafone Group Plc. tax dispute through a tweak in the finance Bill. Worse, the FM proffered another red rag by raising the effective tax rate of the dividend distribution tax, while the popular expectation was that this irritant would be phased out. This is akin to the previous pet peeve of the stock markets, the fringe benefit tax. Presumably, like in the case of Chidambaram’s 1997 dream budget, the stock exchanges will have a rethink once the fine print is deciphered. Of course, the budget had the imprimatur of Modi and the BJP. In a visible change, there was an obvious and complete absence of the Gandhi-Nehru family in various government schemes. Instead, not only were some old schemes rechristened, they were named after BJP icons Deendayal Upadhyaya and Syama Prasad Mookerjee. A beginning has been made.

Source: www.livemint.com