The key themes of the Budget were in line with Prime Minister Narendra Modi's initiatives - Swachch Bharat Mission, Make in India and Digital India. Two main components of Budget are Union Budget and Railway Budget. The initial years of India’s planned development strategy were characterised by a conservative fiscal policy whereby deficits were kept under control. The tax system was geared to transfer resources from the private sector to fund the large public sector driven industrialisation process and also cover social welfare schemes. However, growth was anemic and the system was prone to inefficiencies. In the 1980s, some attempts were made to reform particular sectors. But the public debt increased, as did the fiscal deficit. India’s balance of payments crisis of 1991 led to economic liberalisation. The reform of the tax system commenced. The fiscal deficit was brought under control. When the deficit and debt situation again threatened to go out of control in the early 2000s, fiscal discipline legalisations were instituted. The deficit was brought under control, and by 2007-08 a benign macro-fiscal situation with high growth and moderate inflation prevailed. During the global financial crisis, fiscal policy responded with counter-cyclical measures including tax cuts and increases in expenditures. The post-crisis recovery of the Indian economy is witnessing a correction of the fiscal policy path towards a regime of prudence. In the future, the focus will probably be on bringing in new tax reforms and better targeting of social expenditures.
Finance Minister Arun Jaitley’s budget 2015-16 announcements were on the expected lines and should satisfy the investment community, which was keen to see reforms that will kickstart India’s economy. Although the budget was slightly skewed towards the rural economy, it still managed to stimulate growth for urban India. With the budget, the government seems inclined to follow its bold path of building infrastructure and improve ease of doing business. Its intention to increase public investments while decreasing corporate taxation over a period of time are also steps in the right direction, and surely these steps will further improve the confidence of investors and industry alike. The industry has welcomed the decision to defer GAAR by two years and the introduction of GST in April, 2016.
One area that I feel the Budget failed to address adequately is the critical issue of jobs. Creating sufficient jobs may be one of the toughest challenges that India faces. There are 700 million people living without dignity who need to be lifted out of their desperate circumstances through jobs and livelihoods. On top of this, India’s much-hyped demographic dividend also makes it essential to productively employ nearly 13 million young people who enter the workforce every year. In contrast, even at its peak between 2005 and 2010, the Indian economy created, at best, 5.5 million jobs a year. So, the jobs gap is huge.
The Modi government has been betting on manufacturing and hoping India can be the ‘next China’. The Budget is a bit muted in terms of this. Of course, ease of doing business, tax reforms, better infrastructure and lower import duties on electronic components will help. But it is quite unclear if these measures will be sufficient to jump-start India’s manufacturing sector.
On the other side in Railway Budget 2015-16, Indian railways has undergone a paradigm change with the introduction of faster trains, modern trains and skilled staff, according to the White Paper presented by Railways Minister Suresh Prabhu in Parliament. The Railway Minister has set criterion by breaking a long tradition for Railway Budgets by announcing no extra tracks or new trains. In the past, every Railway Minister would announce new trains for as a tradition. But one thing the present minister made clear at the beginning of his speech was that he would not tax the people to lighten the financial burden on Railways. So the most unexpected part of budget was that there will be no increase in passenger fares.
The Railway Budget envisages an investment of Rs. 8.5 lakh crore in next five years. It is a very high expectation not only because of the amount of the investment, but the challenge is also the deployment of these funds as the Railways are not able to complete projects. Even the last five-year plan targeted investment was never utilized. This was not a failure of mobilization, but of implementation. Money is not being mobilised into project specific targets. The action plan for fund raising should be for partnership with key stakeholders - States, PSUs, and partner with multilateral and bi-lateral organisations to gain access to long-term financing. Also, get technology from overseas to for high funded projects and led a growth by imitation of that technology. The private sector could be roped in to modernise station infrastructure.
Another precedent is Bio toilets and airplane-type vaccum toilets in trains, surveillance cameras in select coaches and ladies compartments for women's safety are glaring eye objectives. What the budget lacked, I think is, that it does not address how the internal reforms of the railways organisation structure will be carried out. Railways cannot achieve anything without the structure of decision making, program implementation and delegation of authority changing.
At the end of the day, a Budget is merely a quantitative expression of a financial plan for a defined time period with clearly defined revenues and expenses. Perhaps in India, we have unrealistic expectations of what the fiscal Budget should be. What we need, however, is greater clarity and granularity of the Budget for not only quantitative allocations but qualitative measures for implementation. How exactly is India going to succeed with this budget is what needs to be emphasised.
