by Harish Gupta, National Editor, Lokmat Group
It is undeniable that the UPA had set out on a course
correction in its final year in office, in a belated attempt to clean up the
fiscal mess resulting from a decade of populist politics. It is no secret that
something went wrong between the real Congress high command and Finance
Minister P Chidambaram as he tried to put an end to the dole regime. But it
would be wrong to say that NDA Finance Minister Arun Jaitley has picked up the
thread from there. He has given directional statement for the nine remaining
months of the financial year a clear roadmap of the neo-liberal reforms that
Narendra Modi had etched out in his election campaign before being elected
Prime Minister. Financial journalist and week-end economist Swaminathan S.
Aiyar described Jaitley's budget as a Chidambaram budget "with saffron
lipstick". Apart from the tackiness of the barb, it showed the pettiness
of Lutyen's intellectuals that prevents them from accepting reforms from a
government not up to their taste even though they swear by reforms themselves.
Chidambaram's fire-fighting stewardship of the economy in
2013-14 witnessed expenditure being severely cut, which indeed brought down the
fiscal deficit. But there was no resolve to address the three ills of the
economy under UPA: inflation, unemployment and lack of capital. It is beyond
the capacity of a finance minister to single-handedly address these three major
issues. Besides, these problems are inter-related; like inflation is due to
insufficient production and disproportionately high money supply, and capital
gets scarce when government makes excessive demand for money to fund projects
that are populist and unproductive, thus raising interest rate to levels that
are too high for private investors. And as capital vanishes, so does employment.
There is a clear sign that the Modi government has
identified this vicious cycle of populism, inflation and unemployment. The
budget is a response to it by the trinity at work—Modi, Jaitley and the newly
appointed BJP president Amit Shah. To them, attacking populism was a political
challenge. The team of three has risen to it manfully. Jaitley has mentioned in
his budget speech that MGNREGA must in future be linked to asset creation and,
for food security, the subsidy must be targeted to the needy only. Targeting is
the key. For that, allocation has gone up 33 per cent on Aadhar and UDAI
projects. It turns upside down the UPA philosophy, instilled through the
extra-constitutional National Advisory Council working through Sonia Gandhi,
that charity is the business of government. It's a transformational leap.
The budget has addressed the issue of capital deficit by
relying heavily on the Public-Private Partnership (PPP) model on every
development project, including in the infrastructure sector. Metro expansion,
100 smart cities, new airports, doubling of gas pipeline—in every sector
identified for development, it wants investment to rain through PPP model. It
reopens the old question: why have 900 PPP projects failed to get much traction
so far? The main reason is CBI scared bureaucracy, bunch of anonymous
complaints, everything going the GoM way, no decision on any file, political
interference with the projects, leading to post-bid alterations in contract and
interminable legal disputes. If the strong focus on PPP models in the budget
points at something specific, it is the Modi administration's strong faith that
it will be able to keep politics out of development projects, and thus honor
the sanctity of contracts. If the Modi government can make the PPP model work,
it will not only usher in a new age for infrastructural development but create
a wave of demand for cement, steel and human labor. All NPAs are being recast
through instruments for road and power projects and PM will directly monitor
all PPP projects and issue written orders. Can any other politician take such a
hit under active 3C (courts, CAG and CBI) ? They seem to be thing of the past.
The budget has come up with special instruments to
channelize private savings into large-scale investments. The Real Estate
Investment Trust (REIT), and another Trust for investment in the infrastructure
sector, is conceptually original. REIT has the potential to replace black money
as capital for real estate projects with the hard-earned rupee of the first generation
saver who's willing to turn investor. Investment in the Trusts follows the
norms of equity investment, with zero tax on long term capital gains and 15 per
cent on the short term. Together with raising the duration of the 'long term'
on debt funds from one year to three years, there are signals that make it
obvious that the Modi administration is promoting the equity culture—another
big-time departure from India's established preference for fixed-interest
savings over risk-fraught equity.
There are many areas in which the budget has preferred to
leave brief hints, not much else, on how it will address some of the largest
challenges. The UPA’s decision to tax companies retrospectively through an act
called GAAR has been put in the cold storage, almost permanent; GST will be
implemented as two BJP-ruled states (Gujrat & Madhya Pradesh) which had
blocked it during UPA, will be made to fall in line; and Direct Tax Code (DTC)
implemented this fiscal. The tax-terrorism is being brought to an end and there
will be no arrests and focus will be on mop up of funds by compounding
violations. The budget has kept an
impressive provision of Rs 63,425 crore to be realized as Miscellaneous Capital
Receipt, which includes the proceeds from government stake sale in PSUs. With market capitalization of only 10 top PSUs going up from 2.50 lakh crores to Rs 10 lakh crores in the
anticipation of Modi coming to power and within two months in office, the
target of garnering this amount is achievable. It’s the “hope” that will bridge
the gap, so the NDA hopes.
Jaitley is a leading lawyer of Delhi with no formal background in economics.
His years as Commerce Minister during NDA-I and sharp understanding of finances plus impeccable integrity
bestowed this role. Modi is largely self-taught and a fast learner too. His
long years in Gujrat as Chief Minister and no-nonsense approach as an
administrator left an imprint on the Budget too. The Budget is not a Saffron
lipstick. The Modi-Jaitley duo have come
close to launch an alternative model of growth in which there will be more
space for the individual to take his or own decisions on investment, jobs and
life. There will be less government and less litigation . As the economy
unfolds post-budget, it will be known if there is more, and better, governance.
(The author is national editor of Lokmat group)
